A Suze Orman exclusive

The Best and Easiest Tax Moves to save for your future

Let’s cut to the chase: If you are single and your adjusted gross income (AGI) is below $95,000 or you are married and file a joint return and your combined AGI is below $150,000 I want you to consider investing the 2005 maximum of $4,000( $4,500 if you are 50 or over) in a Roth IRA. Right now. Don’t give me any excuses. A Roth is simply the best tax investment out there, yet I am amazed at how many eligible folks just let it pass on by.

Here’s the deal:

While a Roth doesn’t give you any upfront tax relief its benefits so outweigh any other retirement account out there, it is not even funny. That’s because it is the only retirement vehicle where you do not pay any tax on your withdrawals. With a traditional IRA, a 401(k) and a 403(b) you are going to be stuck paying tax—at your ordinary income tax rate when you withdraw any money. And with all of those retirement accounts you will also get hit with a 10 percent penalty if you need to make any withdrawals in whatever amounts you want before you are 59.5. The neat thing about the Roth is that you can withdraw your contributions at any time regardless of your age with no tax and no penalty. Now be careful here: it’s your contributions or the amount of money that you actually put in, that you can get a hold of at any time. You can’t touch your gains for at least five years and until you are 59.5; otherwise you’ll get hit with the penalty.

But do you understand what a great deal this is my friends? When you start making the withdrawals in retirement everything is tax-free. Stick with me here, for you need to get this. Let’s say you are 35 and you put in $4,000 a year for three years for a total of $12,000. That $12,000 is the amount you originally contributed. You are now 38 and your $12,000 has grown to be worth $14,000. And something happens and you need some money. In your Roth you can withdraw up to the $12,000 in contributions without any taxes or penalties from the government. It is the $2,000 of growth that has to stay in the Roth for at least five years and until you are 59.5.

And once you reach that age and start pulling the money out, you will owe zero tax. No income tax, no capital gains tax. Nada. As for all the other retirement accounts? Well, you short-sighted sillies who love the upfront deduction, when you make withdrawals you are going to pay tax and it will be at your regular income tax rate; with your 401(k) and IRA you don't get to use the long-term capital gains tax rate no matter how long you have kept your money invested. And as I mentioned earlier there's a pretty good chance that your income tax rate is going to be higher down the line given all the financial issues our country is grappling with.

Another great benefit of a Roth is that unlike other retirement accounts, you do not have to start making withdrawals when you turn 70.5. And when you die, your heirs can take possession of the Roth, and they will not be required to pay any tax as long as the owner had owned the Roth for at least five years. That’s not how it works with traditional IRAs, 401(k)s and 403(b)s, Sep IRAs, Simples or any other retirement account.