Suze Orman Says Roth IRAs Are Unbeatable, But That's Only Partly True

"The tax-free growth advantage compounds dramatically over time. A modest S&P 500 investment from a decade ago would have nearly quadrupled in value. The real difference emerges at withdrawal, where a taxable account surrenders roughly 15% to capital gains taxes while a Roth account preserves every dollar. That difference doesn't just represent savings-it represents money that stays invested and continues compounding in your favor, creating a widening gap between the two account types over decades."

"The no-RMD feature matters too. Traditional IRAs require withdrawals starting at age 73 under current rules, forcing retirees to take taxable distributions whether they need the money or not. Roth IRAs impose no such requirement, allowing assets to compound indefinitely and making them ideal for estate planning. Inflation adds urgency to the tax-free growth story. At the Federal Reserve's 2% target rate, a 30-year retirement sees purchasing power cut nearly in half."

Roth accounts grow investments tax-free and allow withdrawals without income tax, enabling compounded returns to remain fully invested. Roth accounts impose no required minimum distributions during the original owner's lifetime, permitting continued tax-free compounding and offering estate-planning advantages. Over decades, avoiding capital gains and withdrawal taxes can create a widening wealth gap compared with taxable or traditional accounts. Inflation erodes purchasing power, so tax-free growth can help preserve real value in retirement. However, paying taxes now is only advantageous when current tax rates are lower than expected future rates; high current tax brackets may favor traditional pre-tax retirement accounts.

Read at 24/7 Wall St.