A GIFT TO RETIREES THE ROTH IRA CELEBRATES its 20th birthday this year, and like a lot of 20-year-olds, it has never looked so good. You cant take a tax deduction for Roth contributions, but the money accumulates tax-free, and withdrawals are tax-free, too. If you contributed the maximum to a Roth for each of the past 20 years, youd have nearly $200,000 in tax-free savings, assuming you invested it all in a fund that tracks Standard & Poors 500-stock index and reinvested the dividends. Ed Slott, a CPA in Rockville Centre, N.Y., recognized that Roths would become a game changer and started a newsletter in 1998 to teach advisers about the accounts. Slott calls Roth IRAs tax insurance because once youre invested in one, you wont have to pay taxes on contributions or earnings again. The new tax law makes Roth contributions even more attractive, now that tax rates are the lowest theyve been in years but could rise in the future. KIMBERLY LANKFORD UPSIDES OF RISING RATES SILVER LININGS As interest rates climb, higher yields on bank accounts arent the only bright spot. Dont overlook these perks. Increased annuity payouts. If youre looking to buy an immediate annuity, you may get a larger monthly payout than those who invested when rates were lower, says Hersh Stern, of Annuity Shopper Buyers Guide. On deferred income annuities, which delay the payout for a specified period, higher interest rates could also increase the payouts. Relief on long-term-care insurance premiums. In recent years, premiums spiked as low interest rates hampered insurance companies investment returns. Plus, fewer people dropped their policies before receiving payouts than insurers expected. But insurers have accounted for lower lapse rates in new policies, says Jesse Slome, of the American Association for Long-Term Care Insurance. And rising interest rates should help stabilize premiums on new policies. A larger credit line on a reverse mortgage. The unused portion of a line of credit will grow as interest rates rise (the rate on debt youve accumulated will also rise). If youre thinking of getting a reverse mortgage, consider making the leap soon to maximize growth in a credit line over time. LISA GERSTNER HAPPY BIRTHDAY, ROTH IRA As the Roth turns 20, the new tax law gives it an

Roth Versus Traditional IRA ROTH TRADITIONAL IRA Birth year 1998 1974 Maximum annual contribution $5,500 ($6,500 if 50 or older) $5,500 ($6,500 if 50 or older) Income limits $120,000 if single or $189,000 if married filing jointly; phases out at $135,000 for singles and $199,000 for couples None Deductible? No Yes, if you have no workplace plan or AGI of $63,000 or less for singles, or $101,000 or less for married couples filing jointly* Early-withdrawal penalty None, if limited to contributions Ordinary income rate, plus 10% penalty (except under certain circumstances) Required minimum distributions at 70? No Yes

A KIPLINGER APPROACH

The new tax law has a limited effect on Roth IRAs.

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