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).