One of the best means to accomplishing long-term financial success remains the Roth IRA, which is unfortunately too often under-utilized by the public.
Quite simply, the Roth IRA is a fantastic way to produce completely tax-free returns until retirement. Investors trying to simultaneously sock away more money for retirement and escape Uncle Sam’s greedy hands would do themselves a huge service by opening a Roth IRA.
And, since Foolish investors are always on the lookout for promising stocks to buy and hold, here’s three stocks that go perfectly with a Roth IRA.
The long-term rewards of a Roth IRA
There are two main types of Individual Retirement Accounts: the traditional, and the Roth. There’s a place for both, and they essentially offer opposing rewards.
With a traditional IRA, you’ll be able to deduct your annual contributions from your income tax, making for a tax bill that’s a little easier to swallow. However, you’ll have to pay taxes once you start to take your Required Minimum Distributions upon reaching a certain age.
At the other end of the spectrum is the Roth IRA. This is basically the reverse of the traditional IRA. You won’t be able to deduct contributions, but in return, you’ll enjoy the fruits of capital gains and dividends that are completely tax-free.
At the heart of the matter is whether you want to pay taxes now or later. In many cases, the Roth IRA is the best way to avoid taxes and generate the biggest returns, as many decades of gains and dividend reinvestment really add up.
Perfect stocks for the Roth IRA
AT&T Inc. (NYSE:T), the telecommunications giant, is an ideal stock for investors who take hefty dividend yields seriously. The company offers a 5% yield at recent prices, made possible by steady operating results and a business model that throws off lots of cash every quarter.
In its first-quarter, AT&T Inc. (NYSE:T) posted 12% higher quarterly diluted earnings per share year over year, and nearly $4 billion in free cash flow. The company’s second quarter results were equally strong. Diluted earnings per share rose nearly 8% on the back of 1.6% growth in consolidated revenue and more than two million new wireless and wireline broadband connections.
AT&T Inc. (NYSE:T) is committed to returning a significant portion of its cash flow to investors. Last fall, the company raised its dividend for the 29th year in a row.
Lockheed Martin Corporation (NYSE:LMT) investors have enjoyed dual rewards, both in terms of compelling income as well as huge capital gains, in recent months.
Lockheed Martin Corporation (NYSE:LMT) has soared 33% just to begin 2013, and that excludes the company’s hefty dividend payments.
It’s not hard to see why the defense giant is showing such strength, even in the midst of the ongoing sequester and the threat of further defense cuts going forward.
I’ve held Lockheed Martin Corporation (NYSE:LMT) for years, having felt all along the stock’s detractors were overly pessimistic about the likely effects of the sequester. Lockheed Martin Corporation (NYSE:LMT)’s underlying results have only reinforced my position. For all the uproar, Lockheed Martin Corporation (NYSE:LMT)’s second quarter sales fell just 4%. And, due to the company’s effective cost controls and share buybacks, Lockheed actually posted 10% earnings growth in the quarter.