The Omnipotent Roth IRA: Maximizing The Best Tax Shelter In The IRS Code by Brad Thomas

in hive-167922 •  7 months ago 

Summary

  • Thanks to the ever-increasing complexity of the IRS Code, there's always something to learn about retirement accounts.
  • While we don't provide tax advice, we do discuss key aspects of investing with Roth IRAs and demonstrate their tremendous potential to help fund you retirement.
  • Knowing the optimal account type to place an investment in creates free "alpha" all investors should capitalize on.
  • This article focuses on perhaps the most useful of all retirement accounts: The esteemed Roth IRA.
  • This idea was discussed in more depth with members of my private investing community, iREIT on Alpha. Get started today »

Most know that REITs are an important part of retirement portfolios because they provide income, capital appreciation, diversification, and inflation protection. As the founder of iREIT on Alpha and editor of the Forbes Real Estate Investor, I frequently get questions regarding the role of REITs in retirement accounts.

As a result, I thought it would be extremely beneficial to publish a series on REITs and retirement, with an emphasis on simplifying portfolio planning. It's expected that the majority of new 401(K) and IRA assets will be invested in Target Date Funds (or TDFs) over the coming decades, and the retirement security of millions of Americans will depend upon their investment performance.

Although we are not tax experts, Williams Equity Research (or "WER") decided to co-produce this article in an attempt to demystify the complexities, specifically "the esteemed Roth IRA". We intend to provide readers with ongoing retirement planning research which we will publish frequently on iREIT on Alpha and The Dividend Kings.

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Let's start with the basics. This investment account is a type of Individual Retirement Account ("IRA"). Albeit with restrictions, investors can add money to their Roth IRA account and invest similarly to how they would with a Traditional IRA, SIMPLE IRA, Solo or Employer-sponsored 401k, 403b, or 457b (note: the letters on the last three account types are usually in parentheses, but this format designates a stock ticker on Seeking Alpha).

Most are familiar with the benefits of Traditional IRAs which mimic that of Solo or Employee sponsored 401ks: pre-tax income can be invested and grows tax free until withdrawals are voluntarily taken or forced through required minimum distributions ("RMD"). As valuable as these pre-tax accounts are, the day you take distributions is Pay Day for Uncle Sam.

That being said, they come with several advantages.

First, investors utilizing these accounts benefit from paying less taxes as it reduces their taxable income for that year.

Second, assuming capital gains and or income consistently exceed losses, the account benefits from compounding to a greater degree than a taxable account in which dividends, distributions, and capital gains, if applicable, are subject to annual taxation. Just how much taxes are we talking?

Let's check with the source:

First, investors utilizing these accounts benefit from paying less taxes as it reduces their taxable income for that year.

Second, assuming capital gains and or income consistently exceed losses, the account benefits from compounding to a greater degree than a taxable account in which dividends, distributions, and capital gains, if applicable, are subject to annual taxation. Just how much taxes are we talking?

...Originally Posted On Seeking Alpha

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