Re: Cold Feet - Investing for Retirement
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Can someone tell me what, if anything, I'm missing about the "magic of compound interest?"
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You're not accounting for paying taxes each year on the portion of your 8% which is subject to taxation (i.e., capital gains, dividends).
So, if that resulted in an average after-tax return of 7% per year in your taxable account, it would grow to ~$290 in the 20 years.
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Thanks for the response. I should have been more clear. I was intending to compare a Roth IRA with a traditional IRA, so capital gains/dividends wouldn't be an issue.
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There are pretty big differences between a Roth IRA and and Traditional IRA.
The main difference is that while both are funded with taxed dollars, with a Roth, your captial gains when you withdraw will not be taxed. It is essentially the exact opposite of a 401K plan. Essentially the Roth allows you to make gains that will never be taxed...
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