Roth Accounts: Why They Are Attractive Now

Senator William Roth of Delaware is an unsung hero who helped to create the Great Moderation of the two-and-half decades between the early 1980s and the mid-2000s. During this exceptional period in history, inflation was moderate, unemployment was low (rising only modestly for brief intervals in the 1990–1991 and 2001 recessions), and productivity grew strongly, especially after 1995. Much of this is a product of the Kemp-Roth tax cuts of the early 1980s, authored by Roth and Congressman Jack Kemp and signed into law by Ronald Reagan in 1981.

Roth is less known for another great gift to thrifty Americans: Roth tax-advantaged savings vehicles. Roths (such as Roth IRAs) receive after tax contributions—that is, they are not tax-deductible like traditional vehicles; they have already been taxed. Thereafter the account grows tax free for life. There is no tax liability even beyond the grave: You can pass assets inside Roths onto your heirs free of income taxes (but not free of estate taxes).