Retirement Planning : How Does a Roth IRA Compound Interest?

[dinuzuya]

would the investment in IRA be taxed when I decided to take them out?

[xexorz]

Lets look at this with numbers:

Assume 10% taxation (cause 10 is nice and easy)

10% tax on 10 kernels = 1 Kernel leaving you with 9 to grow.

each kernel yields 1000 kernels (yay!)

At the end you get 9000 Kernels - Tax free (Yay!! 9K!)

Now, lets say Traditional, 10 kernels, no tax... You plant them and get 10K Kernels but then are taxed 10% leaving you with.- 9K SAME!

So... Reasons for roth IRA: 1) Can remove contributions any time without penalty. 2) Best if taxed at HIGHER RATE Later...

[Devilbymyside00]

@xexorz

Also, if I understand correctly, any investment purchases made within the Roth IRA, it lessens the tax burden, right? So, let's say that in five years I buy shares on the stock market. In a few years, if I decide to sell and earn a capital gain, I get taxed less because the shares were held within the Roth. Is that right?