Everyone knows that investing for retirement is a key part of financial planning. But there's a great way that many people could save more for retirement that they never take advantage of, leaving a lucrative tax break on the table unused.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the best way to invest for retirement: using a Roth IRA. Dan notes that Roth IRAs don't give you an up-front tax break, but they do offer tax-free growth. Given the high tax rates of up to 39.6% on income from high-yield investments like Annaly Capital (NYSE:NLY) and American Capital Agency (NASDAQ:AGNC), a Roth IRA lets you shelter all that income from tax. Moreover, even 20% maximum capital-gains rates on regular stocks can eat into your gains. Dan also notes the impact of the 3.8% surcharge on investment income, further hitting high-income taxpayers. Dan concludes with a short discussion of the best investments to maximize the value of a Roth IRA, highlighting high-growth prospects Amazon.com (NASDAQ:AMZN) and Gilead Sciences (NASDAQ:GILD).
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Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Gilead Sciences. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.