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A Huge Opportunity Approaches

http://www.fool.com/retirement/iras/2009/10/09/a-huge-opportunity-approaches.aspx

Selena Maranjian
October 9, 2009

On countless occasions, I've lamented that if only I'd known in the past what I know now, I could have avoided a mistake, or made a better decision. The best way to avoid those situations is to learn everything you can all the time.

Anyone who wants a regret-free retirement should start reading up on Roth IRAs. You can plunk your post-tax dollars into a Roth IRA and invest them in what you wish. When you withdraw your money -- along with all the income it has produced -- you'll do so tax-free. That could add up to a lot of money, as these familiar stocks can show you:

Company

CAPS stars (out of five)

20-year total return

Best Buy(NYSE:BBY)

**

13,682%

Nike(NYSE:NKE)

****

2,092%

Walgreen(NYSE:WAG)

****

1,518%

ExxonMobil(NYSE:XOM)

****

1,019%

Procter & Gamble(NYSE:PG)

*****

964%

Deere(NYSE:DE)

****

860%

General Electric(NYSE:GE)

****

467%

Data: Yahoo! Finance, Motley Fool CAPS.

I don't mean to suggest that these companies will keep growing at these rates – but they do show you what kind of growth is possible, if you choose well. Imagine a $10,000 initial investment in Nike; over the past two decades, it would have grown to nearly $220,000. In a regular brokerage account, that $210,000 gain would be taxable, costing most of us 15% or $31,500. (Remember that tax rates may well go up in coming years to pay for our economic recovery -- a 20% tax hit on that sum would be $42,000.)

In a Roth IRA, though, if you follow the rules, you'll likely be able to take out the entire $220,000 tax-free. This is a powerful kind of retirement savings. Imagine hitting retirement with a $1 million Roth IRA account and a $1 million 401(k). Withdrawals from the 401(k) will likely be taxed at your ordinary income rate, which might be around 25%. If so, you could see a $250,000 tax hit. In the Roth, you'd get $250,000 more in your pocket.

A huge opportunity approaches
Presto! You now know more about the Roth than many, if not most, Americans. A Fidelity survey recently found that only about 56% of Americans are confident that they understand Roths. Yet many more than that didn't know the various basic rules governing Roths, including the income restrictions that keep many people from qualifying for Roth contributions.

Here's a huge Roth fact that you may need to know, and