Why Should I Choose A Roth 401(k) Over Traditional?
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I have two pensions. I would much rather have had a Roth 401k throughout my working lifetime. $500/month invested from 25 - 65 at 9% is $2.3mil. I have $100k that i like to invest in a non-retirement account, Where would you invest this as of now?
I would avoid the index funds, mutual funds, or specific stocks for the time being. 5% fixed incomes are the safest bet for now. Save your cash for when the market actually shows signs of recovery.
Working with a financial advisor has been a game-changer for me. They provided invaluable insights and tailored strategies that aligned perfectly with my risk tolerance and financial objectives. With their support, I've seen significant growth in my investments and gained confidence in my financial future.
I've been looking to get one, but have been kind of relaxed about it. Could you recommend your advis0r? I'll be happy to use some help.
Angela Lynn Schilling has always been on the top of my list..She is regarded as a genius in her area and well knowledgeable about financial markets. I highly recommend her if you want excellent collaboration.
Angela Lynn Schilling has always been on the top of my list..She is regarded as a genius in her area and well knowledgeable about financial markets. I highly recommend her if you want excellent collaboration.
While your 401k and IRA account would likely continue to grow even after you stop contributing to it, that growth might be limited by the Market, your personal plans and also other factors. For this I see need for annuities. I still will like to know how to compound $2m and above in retirement without holding cash.
Bond and other fixed income asset if properly managed could produce the yield needed to provide solid income for retirement. The importance of a continuous wealth accumulation and ensuring financial stability is why boomers turn to advisors in retirement planning.
It is very important to be proactive and also consider diversifying assets to manage risk especially in uncertain economic times. The ability to identify and mitigate potential risk on my assets is the reason I delegate my day-to-day investment activities to trusted advisor ever since I had a major step down amids rona-outbreak in 2019. Now I am close to retirement and my goal of $1m retirement funds even after other investment is 95% sure.
It is also very important to consider a financial planner early, before the last year of retirement. I am currently working with a financial planner called Jason Herman Pierce. I really appreciate his cutting edge financial strategies. It really works for me. His vast knowledge of international market and tax implications allow us to moderately diversify my investment portfolios, minimize tax liabilities and access new markets with potential high returns. And I am two year from retirement and my financial goals is secured.
Please how can I get in touch with the advisor guiding you. I am close to retiring and I didn't make proper planning and investment for retirement. Thinking about now scares me. I have to start somewhere. It is better late than never.
His name is Jason Herman Pierce. You can google him via your search engine to get information about him. I am sure you will be fine.
This is financial advice and I never give financial advice: DONT LEAVE DURING THE BEAR. If you donât want to investâŠlearn. If you donât want to learnâŠbuild. If you donât want to build observe. DO SOMETHINGâŠother than leave. There is so much opportunity here. Take advantage!
I would like to take a moment to appreciate how polite and respectful Fernando from Texas is.
A Financial Planner told me Saving at least 15% of your income in a 401(k) can help ensure that you have enough money to retire comfortably. How can one take advantage of compound interest and potentially grow your retirement savings/net-worth to about $3M over time?
Just try to diversify your portfolio to other market sectors, that way your investment is balanced and you donât get to make so much losses
How can I participate in this? I sincerely aspire to establish a secure financial future and am eager to participate. Who is the driving force behind your success?
I've come across a lot of recommendations but this one stands out. Kaitlinâs resume is pretty sophisticated, and shows she was active during the last bear market, I also emailed her. Thanks for the info!
Scam
So he accounts for the taxes taken out at retirement for traditional 401k but completely disregards the taxes being taken out each week funding a Roth 401k. Of course a Roth sounds better if you use that extreme over simplification.
Yeah assuming the same amount of money is available to invest every month and the return is the same then the only way a Roth helps quantitively is if your tax rate is higher in the future (which is more likely to be true for young people making little money). You never know how tax laws are going to change, top marginal rates are pretty low right now compared to history but those changes are unpredictable.
Roths do allow for better flexibility on tax planning in the future (taking money from taxable accounts until you hit a spike in the marginal rate then taking from a Roth until the next year for example) and Roths don't have required minimum distributions but the numbers game needs to take into account all the factors if that's why you are advocating a Roth.
I was thinking the same thing. He sells it like Roth is always better period, without exception. He even says that at the end. Itâs not cheaper, itâs just a matter of paying the taxes now versus later. If you had the same amount of money to invest, and remained in the same tax bracket the entire time, it would make no difference whatsoever what you chose. The only difference between the two is if you think you will be in a higher tax bracket now or when you retire.
Well said... Thought the same thing.
100% this. I was thinking the exact same thing. If you do the math, you wind up with the same amount of money in the end (assuming you invest the extra money you have by funding a traditional account)
I was saying the same exact thing. That's not a proper computation, obviously you would not be able to put in the same percentage contribution after tax as you would before taxes are taken out
My biggest mistake was procrastinating and not starting one as soon as I was eligible. It's really not that hard to open an account and manage yourself. And you can also have your brokerage manage it for you. If you're reading this, start now.
Starting right now! Literally
I learned about this at a late age. I have a retirement through my job 401A. And Iâve started a Roth IRA just a few years ago. Now Iâm try to pass this information on my kids. I mange it my self every month I just go into my account and buy stocks, or every other month.
Where do I go to start
@@NoName-be5irIâm 38âŠis it too late?
@@user-hn9qg5qm3o it's not too late. You can retire when you're 65 if you invest aggressively
I converted to a Roth 401k. I plan on living off my dividends tax-free. People are way too comfortable with low taxes & low interest rates today. Trump's tax cut expires in 2025. Fed's low interest rates has skyrocketed debt all across the board. Social security is heading for insolvency. Country is 22 trillion in debt. TAXES WILL GO UP IN THE FUTURE ! When you withdraw income from your retirement accounts, you will be taxed by the IRS unless you have a ROTH. So pay low taxes now or pay high taxes later ? No disrespect but I think those people are delusional if they believe taxes will not go up in the future
I converted my Fidelity 401k to Roth, even though the Fidelity rep. kept telling me it was pointless.
If I get 12% over the next 30ish years, that could be worth $3,000,000 - easily a higher tax bracket than I will ever be in
I'll gladly pay taxes now for that
I agree for most people. We only live on 50% of our salary so our tax bracket will go down significantly when we retire. I decided to take the tax break now. We max out our Roth IRAs so hopefully we will have 7 figures in both when we retire.
@@EMo-rx7pm take advantage of the historic low taxes & low interest rates now no doubt about it
Absolutely agree. I can only imagine taxes going up in the future. I like the certainty of the rate I'll pay on a Roth today.
@@EMo-rx7pm
L
I was advised to diversify my portfolio among several assets such as stocks and bonds since this can protect my portfolio for retirement. I'm seeking to invest $200K across markets but don't know where to start.
Remember that investing in the stock market carries risks, and itâs important to do your own research and consult with a financial advisor before making any investment decisions.
With the help of an investing advisor, I diversified my $400K portfolio across markets, and I was able to earn over $900k in net profit from high dividend yielding equities, ETFs, and bonds.
Please who is the consultant that assist you with your investment and if you don't mind, how do I get in touch with them?
My consultant is *Sharon Louise Count* She has since provide entry and exit points on the securities I focus on. You can look her up online if you care for supervision.
She appears to be well-educated and well-read. I ran an online search on her name and came across her website; thank you for sharing.
I just turned 29, and I currently have $18,800 in my Roth 401k and $12,500 in my Roth IRA. Starting off slow but can't wait to see the compounding.
How long does that usually take?
@@dangdeionn people usually say after $100k the compounding starts working well
Get a prenup brother
Iâm so glad I found Dave at 13 đ
Great job to!
I was confused in my tabs and thought you meant Dave Chappelle
Get started and try to avoid the temptations. đ
Same here đđ
Just donât fall behind on them video games )
I wish he asked him his income. Roth is better if you aren't in a high income tax bracket and 401k is better if you're trying to lower your taxable income.
700 at max contribution answers the question. He doesnât make crazy amounts.
@@dylanstandridge3201 how do you know that?
@@esonon5210 700 dollars for a month at max contribution of a little over 20%. The math on that means theyâre making 3-4K a month if it varies. So itâs safe to say 36-48k per year.
@@dylanstandridge3201 You're right, he would be better off putting money in the roth since he doesn't have to pay much in taxes anyway. I just don't like Dave's one size fits all advice. It's great for him but not for someone who makes six figures and is taxed at 32% compared to the called who's only in the 12% tax bracket.
@Andrew youâre taxed at whatever income you have when you retire, if you make less by that time or the tax rates become more lenient over time, you will pay less.
Besides rich people max out their 401k to alleviate the amount of taxes they owe and if theyâre smart, they figure out how to make a living off of stock options since investment taxes are much more lenient than the taxes on earned income.
investment requires good experience and knowledge to carry out a good and successful trade, I have lost a lot trying to trade all by myself May I ask which investments are good? I've been looking at a few different ones but want others' opinions as well.
@susannicky One thing to caution with advisers: They add a lot to their own income by selling you on life insurance that doesn't make financial sense. Before signing up for a life insurance, really ask yourself if this is something that makes sense, especially with a whole life insurance plan. If you feel adequately covered by an employer's life insurance or some other plan, don't let the adviser push you into a super expensive life insurance that gives them a large commission. They will put the pressure on you.
Planning retirement has never been this confusing! First SVB, then Signature bank and now First republic, these are all the signs of yet another 2008 market crash and recession 2.0, so my question is do I still save in the United States dollar, or could this be a good time to buy stocks? So Iâm left wondering what 2023 has in store for us investors, Iâve been sitting on over $745K equity from a home sale and Iâm not sure where to go from here,
In other words, an advisor-managed portfolio would average 8% annualised growth over a 25-year period, compared to 5% from a self-managed portfolio
@@rickertcoles I agree; for over 17 months, I've maintained regular contact with an investment advisor. Nowadays, it's really simple to invest in trending stocks, but the challenge is knowing when to sell or hold. To support me with entry and departure points, my advisor steps in. Within 18 months, I've accrued almost a million dollars from an originally stagnating reserve of $300K.
@@sherryie2 I'm happy to have stumbled upon this discussion. If you don't mind, could you tell me the name of the financial adviser who helps you with your investments and how I might contact them? It Intrigues me to keep learning.
@@flemmingbrooke Finding financial advisors like "NICOLE DESIREE SIMON" who can assist you shape your portfolio would be a very creative option. There will be difficult times ahead, and prudent personal money management will be essential to navigating them.
@@sherryie2 Thanks for sharing, I just looked her up on the web and I would say she really has an impressive background in investing. I will write her an e-mail shortly.
He totally ignores the taxes paid before contributing to the Roth.
Agreed. The better analysis (IMO) is to calculate the tax on the $6K/yr contributions as compared with the tax at retirement on the $1.7MM. You are likely to be at a lower marginal tax rate in your early earning years relative to your later earning years and in retirement. The net saving is the difference between the tax on $1.7MM (~$400K) and the total tax paid on the $6K contributions. Still a big gain and there are behavioral factors to be considered as well.
modap3000
I donât mind that he donât know me or my situation.
I can figure out that part on my own.
I don't think he ignored it. With roth you are paying the tax in your contribution ONLY and with 100% TAX FREE on the growth. With traditional you're going to end up paying for the tax of your contribution PLUS the growth.
Which one would you think you'll end up paying less tax?
With this case
Traditional
Contribution: 200,000 tax free
Total: 1,700,000- (tax) 400,000
Roth
Contribution: 200k + maybe 50k tax
Total: 1,700,000 TAX FREE
@@run_deng so you only have a Roth 401k not both right? I barely got one and I was figuring out the difference....
I think the key thing to remember is that the taxes you know are better than the ones you dont. They are likely to go up by the time you retire. Unless it lowers you tax profile significantly, it's better to do roth first to the max. Yes its a bigger "hit" on the take home bottom line but overall its a better strategy for most.
You didnât disclose the amount of taxes youâll pay leading up to 60 with a Roth. It only makes sense if you go with a traditional 401k due to more liquidity speeding up capital gains. Of course youâll get taxed heavy later but the ROI is more in the traditional. Please explain.
the only mathematical difference between the Roth and Traditional is the expected tax rate. if you think taxes will be higher in the future you should pay now and use roth IRA. if you think tax rates will decrease in the future you would be better off waiting to pay and pay when you pull the money out of the traditional. Dave's example is a bit disingenuous as he is framing it as if it's as simple as saying do you want 400K more or less. The honest reality is if you make 100K a year with 20% tax rate and contributing 10%. using arbitrary numbers for easy math. If you put the 10% into a traditional you put 10K in and are taxed on only 90K income, thus paying 18,000 in taxes leaving you with 72K after tax income. If you contribute to 10% to a roth IRA its after taxes. so you will be taxed on 100K income, pay taxes of 20K and have after tax income of 80K. but then 10% of that is 8K contribution. leaving you with the same 72K disposable income. but you only contributed 8K on an after tax basis. not 10K in the traditional IRA example. technically for Daves example to be accurate of getting this after tax higher amount he discussed. you would have to contribute the same 10K as you would in the traditional example; however your left with less disposable income every year of 70K. *** there are also roth IRA limits that come into play as well. but the true kicker is that if your putting the same nominal amount to each and investing it in the same assets mathematically there is not any difference unless the tax rates change over time. if you think taxes will be higher in the future go with roth. if you think taxes will be lower in the future stick with traditional. Currently tax rates are near historical lows for context.
I think your premise here is totally accurate. However, I'm not aware of IRA limits on Roth 401k vs Trad. It's the same limit I think.
apologies, yes the contribution limit is the same for Traditional vs Roth. I believe I was thinking about 401K vs Roth here. but additionally you can still get phased out of a Roth IRA if you are expecting to be making over 125K (single tax filer) by the time you retire. and that number does move up generally with inflation but earnings also tend to rise exponentially with age. But ultimately Decision should really still come down to do you think taxes will be higher in the future? if yes go with a Roth, if no go with a traditional.
@@jordanumphress9555 Yes, but there is loophole for the high income to be able to contribute to a Roth IRA. They can roll over into one I think.
@@jordanumphress9555 Yes, but there is a loophole where high- income can contribute to a Roth IRA. They can roll-over into one i think.
The rates across the relevant income brackets and the standard deduction for the traditional (i.e., all income taxes actually paid).
Something else to consider is that you're going to be taxed on the money regardless. Either now or during retirement. If you expect you'll retire into a lower tax bracket, the Roth may not be the best choice.
@C B you'll still have to pay federal taxes
@C B đđđŸ
IF you have no tax liability NOW then the Roth seems like a no brained though doesnât it...
@C B State taxes are definitely important to consider. However, for most people state taxes are not very significant compared to the federal tax. In California, for example, to be in the 10.3% tax bracket, taxable income must be more than 551,000 for MFJ. If you make more than 551,000 your federal bracket is 35%. So although 10.3% is a lot in CA, 35% federal tax is much more. And yes, lots of people who lived in NY during their career at high tax rates move to FL to retire with a 0% individual income tax rate.
@C B 551K is married filing jointly (MFJ) in California. Single is half the amount, which I think is the figure you are providing. I know people who live in San Jose. It is very expensive, and not uncommon to make 250k. Understood.
There are exceptions, but generally the Roth IRA is a great idea, if you qualify. The 401k is a no brainer up to the match, if offered by your employer. If no match, 401k or the 457 for some, are still great deferred compensation plans. They allow avoidance of current taxation, and allow for compounding returns over hopefully long period of time( get in as young as you can). When you draw it out, of course you have tax liability at your ordinary taxable income rate. Some on these sites want to badmouth putting money into the 401k plans as not the best investment vehicle, for some, real estate or other investments might return more, but as a vehicle for saving and investment, I suspect deferred compensation plans have allowed more of the working class to reach millionaire status than any other vehicle. Donât shun these lightly. How soon and how much you can invest, and which investments you put into your vehicle will determine the speed at which your funds grow. The tax collector will get the governmentâs slice on withdrawal, just like they may claim a slice of your ordinary investment account funds in the form of capital gains or ordinary income tax on dividends. We can delay it, but likely not avoid paying taxes. Even death doesnât exempt us.
Double tax exempt muni bonds may assist, but youâre not getting high returns on those accounts either. If you happen to end up being a high rate tax payer in retirement, I guess itâs good to have such an . Itâs nice to see large balances on your accounts, but just keep in mind we donât get to keep it all.
The thing that overlooked is that the tax on the final amount is less than the growth received from investing money you wouldn't have had. Let's say taxes are 10%. You can invest 500/month in post tax dollars or invest the 500 plus the 50 you would have paid in tax into a 401k. The growth of that extra 50 a month is much much larger than the additional taxes even if you are in a much higher tax bracket at retirement (and even if tax rates rise throughout your working years). The only way it sort of makes sense is if you assume people will magically spend the extra 50 rather than investing it or even using it to pay debt or save.
Yeah most likely people are spending that extra 50 being Daveâs point. If you invest it, it should work out similar.
Dave the question you didnât ask was what his tax bracket is now... bc either way taxes get paid. (The 400k)
It depends on if you expect your taxes to be higher or lower in retirement.
Itâs not possible to know what the tax rate will be in 30 years.
Thatâs why you should always choose Roth.
If youâre not working in retirement, would your income be zero, which means youâre rate will always be lower taxes in retirement?
Yes, and then its essential that marginal and effective tax rates are included.
he asked his income. smh re-watch the video
@@surf5609 he asked how much the guy was contributin ans what percentage of income from that information Dave can extrapolate his income and tax bracket. Basic mathematics would tell you the guy is in the 12 percent tax bracket.
I guess it depends on everyoneâs personal situation, but I would think you would want to have every dollar working toward growing that 401k balance in order to get it as large as possible. I can see how a Roth makes sense when you first start your career, but once you reach a certain income level you probably need to determine whether youâre making more money now compared to when you retire. If you have a pension, social security, and youâre 401k then I think the traditional looks a heck of a lot better than Roth. In theory, your cost of living should be lower when youâre retired than when youâre in your working years so youâll likely be in a lower tax bracket.
The argument that taxes never go down, but instead only go up should be considered here. I'm not saying that I know the answer, but rest assured we will all pay higher rates of taxes 10, 20, 30 years from now than we would if we retired on a 401k now.
A pension actually starts to make a Roth look better because it fills in your standard deduction and your lower tax brackets. If you don't have a pension or other income the traditional starts to look better. But bottom line is you need to run the numbers on a tax calculator
I put the max annual amount into Roth 401(k), especially now with inflation and other stuff. Taxes will not be lower decades from now. Of that you can be certain.
Pensions and SSI are federally taxed, assuming you had a decent salary while working that could be 70K in earned income that is taxable. Add traditional 401k deductions and you're probably paying taxes as if you were still working. W/ a roth at least your only paying taxes on some of your money, not all of it.
The issue he is not mentioning is you'll be able to put more money in if it's pretax so it would be more 2.5 m because you're able to put in a certain percentage more. Yes, you pay taxes at the end, but the gross amount is more.
He addressed this at the end. He said most people end up investing the same amount of money per month, regardless.
If you work the numbers out, it comes out pretty close either way. A Roth will be short of a regular 401(k) after taxes you could end up saving money with a Roth. It also matters how much time you're investing.
Also, with a Roth, you can take money out if you really need to without paying a penalty .
I myself, also have a pension. I chose a Roth 401(k) as my tax burden will be higher in retirement. I will be making my current salary along with withdrawing from a 401(k).
Yeah, I was confused by him not mentioning that. I max out a 401k traditional, which leads to about 4k in tax savings. That's almost enough to additionally max out a Roth IRA without even noticing any money gone from my paycheck.
Deciding between a traditional and roth has 100% to do with your tax rate now vs retirement. If you believe your tax rate will be more in retirement, do a roth. If you believe you will have a lower tax rate in retirement, go traditional. It's that simple. One does not yield more than the other if the tax rate is consistent. I personally do a traditional.
no it doesn't, traditional is always better if you're paying taxes. All the money saved from deductions can be invested and compound too and you can always control how much you withdraw when you retire from your traditional to pay less in taxes
@@ammar3094 what if I have rental properties when I retire and I don't right now.
Roth is better if you're just starting your career because all of your earnings are tax free too. Also, who knows what tax brackets will look like in the future
@DH-lm6kh mathematically, it's not any better.
@@off-gridengineering3377 lol yes it is, because the earnings are tax free...
Schools: What would you like to study this year?
Students: How about some basic financial literacy?
Schools: Perfect! Please open your textbooks to Chapter 8 on parallelograms!
You made my day. You deserve more credit for this.
Schools arenât there to teach one particular procedure, itâs there to teach you skills that you can apply to learn those procedures. Plus, you can take financial mathematics courses if you want.
I havenât laugh so hard all year. Thanks
Schools are designed to train you to work for someone for the rest of your life. They donât teach you how to become wealthy. Wonât be enough working bees đ..
I mean we do have personal finance. Clases at my school and we watched dave ramsy videos
Does the answer also depend on how much you make too?
$500 taxed vs untaxed are two different things as well. $500 is really $600 (20%) out of your pay after getting taxed in the Roth. The question is, what could you do with an extra $100 per month if you decided to go traditional? Perhaps, reinvest? Or payoff more of your DEBT (which most of us have)? Dave gave somewhat of a, not bad but, generic response. Make sure his suggestions fits your current position before going all in.
I think Roth only makes sense if you have no debt.
@@2hot2handle65 According to Dave's plan though you don't put anything into retirement until you're debt free.
@@BachBeethovenBerg Right. I followed his plan this year due to inflation. I put the maximum amount allowed into a Roth IRA.
â@@BachBeethovenBerg which is incredibly stupid... lol
Precisely! I want more money in my pocket âŠ. NOW
Question: if you paid taxes upfront, you put in less money? But if you put in your money before taxes, you allow your money to compound potentially larger that can adjust for paying taxes in the end, correct?
Your exactly right. If you check out the math for putting in for a tax deferred plan, because you are putting more money in than you would paying taxes, the compounding effect would substantially increase your "nest egg". If you assume the same rate of return, then you would of course need to also figure out if you would make enough money to cover the taxes you will pay. Well this can be hard since you don't know what the tax rate will be will you are ready to retire and start pulling from the retirement account. I believe the math check outs that you will based on little assumption like when you expect to die, etc; but i still believe in contributing to both! I do not understand why this is not spoken about upfront.
Yes, if you actually adjust for the tax refund, Roth and Traditional are actually 100% the same in the end.
Assuming a 20% tax rate, $500 in Roth would really be $600 in Traditional.
The main difference in the end would be on potential tax arbitrage in retirement. If your tax rate is lower in the future, you want to go Traditional. If your tax rate is higher in the future, go with Roth. This is why almost all young people should start off with Roth and switch to Traditional some time in their 40s when their income increases to near their peak.
With the gov't bumping up debt to insane levels, I would assume that tax rates in the future will have to go higher at some point and previous administrations have not done this because politically it's not popular. That makes me think Roth 401K is the way to go. I have 5% going to Trad 401k, 15% to Roth 401k and maxing an HSA because health care costs will most likely skyrocket if we keep things status quo.
It's not tax rates in general that makes that decision between Roth and traditional. But your savings habits and how large your portfolio is. Obviously somebody with just the median retirement savings doesn't have to worry about paying much tax if they take a safe withdrawal rate. Of course nobody should have a goal of the median retirement savings in the US.
This is exactly my theory too. We are spending way too much and itâs gotta be paid somehow in the form of higher taxes in the future.
Hereâs is my confusion, if you put after tax investment into a Roth, then you donât have the same amount in overtime to accumulate growth on the money, meaning a lower return overall, so calculating the difference is more like an even break because the money you lose in taxes with traditional will be similar to the amount you lose in growth with Roth
Yes and not to mention you canât contribute as much per year compared to a 401k. Just be like me and have both
@@metaltera86 You are mixing up a ROTH IRA with a ROTH 401k. The ROTH 401k contribution maximum is the same as the traditional whereas the ROTH IRA is $6K unlesss you are over 50 then you can contribute $7k.
That GROWTH tax-free is absolutely a GAME-CHANGER.
What about the growth lost on the tax amount and lost tax amount itself. If you take a scenario where you start with same base amount and contribute in roth 401k after taking out tax amount, then you end up with same results. You pay tax now or let it grow and pay tax later.
What he should say is either you have 1.7 million that you will be taxed on or you will have 1.3 million that you can take out tax free. What matters is what you think you will gain or lose in the future tax bracket.
vincentrich - Banned But Not Forgotten Iâm 18 debating on which one I should open. Everyone is telling me to open Roth but my dad is saying open a traditional. I honestly think the tax bracket it going to get higher because I could see America move more and more towards a socialist type of economy. What are ur thoughts on what I should do
@vincentrich - Banned But Not Forgotten not true! There should be far less principle than growth due to compound interest. The real problem is which one would you rather pay taxes on
Agreed Iâm not sure he explained this well
Disagree. What he is saying is that usually people contribute the same amount, wether itâs to a Roth or Traditional. So you would have 1.7 million in both accounts.
@@luisenriquerivera3145 if you contribute the same amount as a percentage of your income the roth will be less because that will be taxed before going into the account. If you say I want to contribute $100 of my income to my roth account and its taxed at 10% only $90 of it will go into the account while in traditional the full $100 will.
Started when I was 22 Iâm so excited
1.7 or 1.3 after taxes is inaccurate. Pre tax would allow more dollars to grow or debt to be paid or more investments. What matters is TAX BRACKETS: now vs retirement. Which will be lower?
I think Dave fails to address one thing whenever he discusses this topic. While I agree with Roth 401k and use one myself it is not as simple as he states. If you contribute the same amount to Roth and traditional the traditional will have a higher balance for the duration of the growth which will actually come out to a higher balance in the end. This higher end balance helps to offset the taxes that are taken out at withdrawal time.
Agreed. I was very confused that he just simply said they'd both have 1.5 million.
It all hinges on what taxes are many years from now. Most likely they will be much higher.
@@robshell5367 no way to know. âMost likelyâ based on what?
Wrong. The balances will be the same because the contribution rate for both are based on gross income. Difference is traditional is gross - contribution - taxes and Roth is gross - taxes - contribution.
@@111689josh If you wanted to dedicate a specific dollar amount to retirement saving, say $500 per month, and elected to go pre-tax you'd save exactly 500. If you went post-tax route the 500 would be reduced due to the immediate tax implication. Your approach to the dialectic method is rubbish. If you want anyone to listen to what you have to say, don't open with 'Wrong'.
I think for most folks especially those who make 50k a year or less and wonât see any major income growth their tax situation will probably be a wash in retirement.Iâve personally found that I cannot max out my Roth because it eats too much into my take home, and puts my monthly budget which is super tight into a deficit. I wish they would do a video on the take home pay effects on pre tax and after tax contributions.With pretax I end up with $90 in the black, and I contribute a larger percentage. I do have a Roth IRA and will continue to put extra cash in it via overtime or other small bonuses.
Need to add the effects of marginal vs effective tax as well as the effects of AGI based credits and deductions to your analysis.
Canât you just take the contribution amount you would make between now and retirement into a either 401k (assuming they are equal), multiply that by your estimated tax rate you are currently in to arrive at an amount you would pay in tax on those contributions if you were to use a Roth option. You then divide that amount by the future value amount you will have saved in retirement if you used the traditional ira approach? This would give you the tax rate you would need to get below to make the traditional option worth it. I know this assumes a steady tax rate from now until retirement, it assumes you will spend all of your retirement savings, and doesnât account for earnings while in retirement. However, it gives a good estimate. For me, my tax rate in retirement would have to be below 10% to make the traditional worth it.
If you want to invest the tax difference into your traditional ira, just calculate the future value of your traditional ira with the additional monthly funds and use the same formula. However, this will just makes the threshold tax rate even lower, thereby making the Roth option even more attractive (I.e. a larger nest egg means more tax). There is a crossover point but we wonât get that complicated.
Depends on your salary
Biggest financial mistake I ever made was with my 401k. My company had a Roth 401k when my kids were in college, but I didn't actually start contributing until year 3 of the 6 years I had kids in college. Because I was helping them with expenses, I was entitled to the tax credits, so my effective tax rate was extremely low. That is the time you NEED to be in a roth! i still retired with about $350k in my 401k.
People don't really know this, You need to create your own process, manage risk and stick to the plan, through thick or thin while also continuously learning from mistakes and improving.
I totally agree; I am 66 years old, recently retired, with approximately $1.2 million in external retirement funds. I am debt free and have very little money in retirement funds compared to the total value of my portfolio over the past three years. To be honest, I didn't do all this alone, but with the help of a financial advisor. Having one is currently the best way to trade in the stock market, especially for people nearing retirement.
Your advisor must be really good. How I can get in touch? My retirement portfolio's decline is a concern, and I could use some guidance.
The advisor that guides me is Sonya lee Mitchell, most likely the internet is where to find her basic info, just search her name. She's established.
He doesn't take into account of the tax break, company match, location, and income after retirement when comparing Roth vs Traditional.
@C B You're right. Dave uses an absolute value analysis without accounting for the tax breaks, future income, company match, where you will live in the future in retirement. I'm not against a Roth as I currently contribute the max each year. But to completely ignore 401k contributions is ludicrous.
@C B yep
If taxes go up (which they will) the Roth will be a better deal
@C B Then stop watching the channel and start your own channel giving out your better advice, sensei.
@C B It does not bother us at all, we just want further clarification from you rather than general phrases like taxes are not taken into account etc. And you can do so with your own video please.
he'll pay taxes on the 5% match regardless correct? And is tax on the growth in both cases (traditional & roth 401k) income tax or capital gains?
No, there are not capital gains in a 401k. In a Traditional, you pay no taxes on the match until you withdraw your money at your standard income tax rate (which should be lower when you are retired).
For Roth, you need to treat the employer contributions as part of your salary and pay taxes on them.
Amazing information !! Thank you so much for explaining this in layman terms, 401k's can be very tricky if you have no clue how they really work
He really didn't do a good job. He didn't mention that the reason why you pay taxes when you pull your money out of a Traditional account is because the government is agreeing to give you back your taxes. If you invest your tax refund instead of spending it, both Roth and Traditional are 100% the same.
The reason why Roth had a larger total at the end of his example because you literally invested more money in Roth. Because of the tax refund, $500 in a Traditional account is $400 in Roth. But $500 in Roth is $600 in Traditional. You are investing more by going Roth.
How would the math differ if you put in $600 traditional in comparison to $500 Roth since the take home pay would be the same. That extra $100 per month would also have substantial growth over time and may offset the taxes or get closer. I am doing Roth. Just curious if it closes that gap alot on the 400k in taxes mentioned.
Assuming a 20% tax rate, $500 in Roth is equal to $600 in Traditional assuming you invest the $100 refund on the $500 investment.
The vast majority of clients are in a lower tax bracket at retirement. Signed, a tax preparer.
Lol... vast majority is an interesting term to use to describe the number of clients you've been introduced to
@@micdeleon What is funny and why is it an interesting term to use?
@@signalfire15 theyre a troll
So move to lower income job close to retirement?
@@montyi8 move to no job at retirement. Your income is basically what you withdraw from your retirement account(s) unless you have other income-earning investments.
This man has respect and you can tell he will listen
Thanks Dave. I just started my career out of college. I am 21 and debt free with my emergency fund.
Great start
@@nicke4reallol
*And can't help but think the income tax rates will increase in the future, maybe by a non-trivial amount* đȘ
To true, I like the peace of mind that no tax changes will effect my retirement
@C B đ
They could just as easily change the tax rules that apply to Roths.
Steve E Thatâs always been my point when talking about this subject...âbird in the handâ (tax savings now) for me.
@C B stock market does better with democrats in office.
Dave: Heres the math why Roth is better
Also Dave: The math isnt important
Just waiting to hear Dave call this guy " honey " any moment now ~
Quid pro joe đđ
Lol. Perfect.
My employer now allows Roth contributions along with the normal before-tax contributions. They match up to 7% of your salary when you contribute a max of 6% or more. My question is should I switch to just do Roth contributions, or do half and half? Or say I do the 6% and get the 7% but only 2% of the total 13% is traditional and the other 11% is Roth?
He's right and he's wrong. Putting 500 in a traditional 401k pre tax. Putting in the equivalent of 500 before taxes (based on his estimated tax rate) the person would be adding $382.50 per month after taxes. That over the same time period of 30 years leads to 1.3 Million instead of 1.7 million with approximately 400k in taxes.
Since most people in retirement will only withdraw small chunks at a time, their tax rate will likely be very low in retirement. In this case, wouldnât it make more sense to benefit off the tax breaks now with Traditional as opposed to in retirement with Roth?
have taxes increased or decreased over the years? answer that...
The growth is untaxed in a Roth. This means that if you are younger (aka more time for investment to grow), it makes sense to be more Roth heavy
Three letters: *RMD*
hypothetically shouldnât the traditional have more money into it? Since itâs pretax you have more money being invested? So someone putting $500 in a Roth will have less than someone putting $500 into a traditional?
So if you are "putting in" $500 to Roth compared to Traditional, you are putting the same amount in, what does happen is that your take-home pay is less due to being taxed on the extra $500 for the Roth. So if you look at the perspective of receiving the same amount of take-home pay, that would make the amount of the traditional higher because you are not taxed on that $500, so you are able to contribute more to retirement.
@@ReallyBoredMan oh really? so they tax your income so you have less take home pay but $500 is still the amount going into the retirement account regardless if its Roth or 401k?
@@davidr4210 depends on the what your retirement plan is set up with your employer. Generally it is based upon how much % pre-tax or % post-tax you want to contribute. Most if the time it is not based upon a set dollar amount.
Wouldn't it be less since you're taxed on it in the beginning? So what's the difference after paying the taxes upfront?
What about the benefit of the tax write off for the $6k a year in the 401k($180k/30yrs)? Guess the deciding factor would your tax bracket?
Something to consider that Dave completely ignores is that since there is no penalty to get your money out of a Roth, you're more likely to raid it before you retire. You don't have that option with a Tradtional IRA without paying a penalty.
Only contributions, not gains.
I like the idea of having the money if I need it
This is assuming you will be putting the same amount into your 401k, regardless of which type you choose. I know for me personally I am able to contribute more to my traditional 401k than I could to a Roth because of the reduction of taxes. If I chose a Roth, my taxes would go up about $200 a month. I run a tight budget. That means I would be contributing $200 a month LESS to a Roth than a traditional. I think for most folks this would be the case. I'm also not a fan of long term projections. I'm old enough now to know they often don't pan out anywhere close to where an adviser said they would. As a matter of fact, my experience has been that it's smarter to cut those projections in half and then be pleasantly surprised if they exceed that.
Correct. And if you take distribution when you retire at the lowest tax bracket who knows what you'll actually pay in taxes (maybe very little or none!). My best strategy is fund both, leave more on traditional but still have some Roth to pull out of if I don't want to jump that income bracket when I retire.
Agree 100% with your comments and add in this: If your personal tax rate is lower or much lower when you retire than when it was when being taxed for 30+ years on a ROTH you come out better with a Traditional/ Regular IRA.
The only thing you do not know in advance is: what your personal tax will be in 30+ years.
Me, I choose the Traditional/ Regular IRA route and here I am 30ish years later and am in a LOW personal tax rate bracket.
Luck, maybe or 50/50 chance?
@@mv-db4463 nobody knows what the tax rates will be when they retire (regardless of how much they plan on taking out). Just saying consider taxes going up as well.
It feels weird to have a caller that seems sharp enough to pickup what dave is throwing down. So many callers sound just as clueless after Dave's advice as before they called.
@Jee Vang What do you mean? He addresses that when he talked about ROTH vs traditional 401K. People who prefer ROTH are optimistic. We assume that the 401K money will grow significantly, so why tax the growth?
Also, I think Dave mentioned that the tax rate is different depending on when it is taxed. ROTH money is taxed at a lower rate than traditional 401K because traditional 401K is a large lump sum when it's taxed.
If you assume a reasonable rate of return and amassing a large lump sum that will be drawn at some point, ROTH 401K and ROTH IRA are both no brainer decisions.
Can you elaborate on how this is not a reasonable view?
@@darylallen2485 you don't have to tax the Traditional as a lump sum as Dave explained. You withdraw it yearly and pay income tax on it as you go.
I still believe a Roth is better, but he failed to mention that in a standard account you would have much more than 1.7 million, because they wouldnât have taken any of your money out for taxes and you would have earned interest on that money for 30 years.
Being so young and watching Dave is preparing me for an amazing future. My boyfriend & I are both 21 and ready to live our best life with the smartest financial decisions.
Respect that for your age!!
how much do you tithe
I knew a couple at work that introduced me to DR when they were 24... maybe 16 years ago. They put it into practice then. I didn't, not wholeheartedly. Needless to say, I am stuck working days I'd rather not work. The hole got bigger, and there is never a shovel big enough! We'll be there in a few months though so there's that. Better late than never!
The most valuable thing anyone has is time.
@@monkas7270 none
It's not like people will be withdrawing the entire balance of their 401K's all at once in retirement. Most will probably apply the 4% rule annually so they would be paying a smaller percentage of taxes in retirement then in their working years.
Traditional is a great way to avoid a huge tax bill at the end of the year.
Steve Sud True, but all the money that is withdrawn will be taxable. Would you rather be taxed on the $180,000 deposits or the $1.7mil withdrawals.
@@brianmcg321, what Patrick Davis said: If you have $2 million and you plan to draw it down over 20 years, that's $100,000 each tax year that will be subject to income tax. Compare that having a one-off income of $2 million in a single tax year, and zero formal income after that, and you'll see that the former example (steady drawdown) results in you paying less tax than the latter (single immediate withdrawal).
Steve Sud
Just a normal tax like income and you can control this so no big deal to me especially with blended income sources.
Only thing to be aware of is RMD and a situation that you may need to draw a lump sum in an emergency that may put you in higher tax bracket and cause your regular healthcare and Medicare premiums to go up.
This is one of the reasons why I prefer Roth.
Actually my whole plan from day one was tax free monthly dividend income and it looks pretty good now.
@@sent18inel , The 4% rule is a rule of thumb for withdrawal rates from retirement savings.
@@sent18inel, it's a heuristic that assumes you will draw down your investment over 25 years, and so if you work out 4% of your investment balance when your retirement/drawdown starts, that's how much your effective income will be.
Whether it's taxable will vary based on what financial product you're using.
The rule also does not take inflation into account. To take this into account, let's assume that you want to withdraw 4% of your investment as it stands when you retire, and you withdraw the same real amount (i.e. increasing with inflation) each year. For example, you might have $2,000,000 when you retire, of which 4% is $80,000, and plan to withdraw the equivalent value of $80k each year
Then, assuming inflation at 3% (e.g. so that you withdraw $80,000 in year 1, $82,400 in year 2, etc.), and that your investment does not grow once your retirement starts (i.e. you don't continue investing it or don't even keep it in a petty savings account awarding measly interest like 1% a year), then you can actually expect to run out of money just a few weeks before 19 years have passed.
Great information đ
I think some folks posting here are missing the fact that companies can offer both Roth 401K as well as a standard 401k. In this case, both would likely get the same company match and also have the same maximum annual contribution. So now it's a matter of taxes.
On top of that if your company offers a Roth 401k and matches those matches must legally be put into a traditional 401k. So if you arenât sure about your future tax burden it helps knowing you have a little bit of both in the future.
@@steveb2616 this is exactly my logic and why I contribute Roth. Because now with the match my 401k will be 50/50 traditional/roth
Yes, you pay more in taxes later, but with a traditional IRA, you are also freeing up money which could be used towards other investments. They both have their advantages
If someone were to make $90,000/yr right now and they invested $6500 into a traditional (pre-tax) versus a roth (post-tax), you save about $1,500 on taxes. $1500 x 30yrs = $45,000. Would you trade $45,000 now for $300,000+ in taxes saved later?
@@Silidons91 only way to be fair in this comparison is to account for the compounding of the extra dollars invested lifetime. (comparing to your 300,000 in taxes later..)
@@Silidons91 but I invest my $1500 in something else like a house recently....
@@deexero what
@@Silidons91 youâre not gonna have just 45k in your exampleâŠ30 years of 0% gains? Lol
*GREAT VIDEO DAVE* | Roth 401K and Roth IRA for the win!! So many haters in the comments RE: the Roth option but my goodness...you DONâT KNOW what future tax rates will be! Theyâre low now though and likely to go up in the future...GREAT VIDEO DAVE! đđđ»
Ok got it. What if my company only has a 401k. But are planing to offer the roth401 in about 2 years or so. Should I open the 401 and then switch over when the 401roth is available or wait. And do the Roth IRA maxing my 15%. And when they offer the 401roth I can then lower the IRA by w e the job matches? ?? To balance the 15% .
Hi Dave, I live in Australia and would love to have a chance to call up on your show but I donât know how to do same. Iâd love to have a chance to ask you a question.
Are you a US citizen living abroad? Australian finance rules might be different than US
The question is, what will income taxes be in 30 years?
Exactly, Also how much will you be withdrawing from the 401K. No point in pulling out 1.7 million all at once typically for a retirement
*Never too early to think about retirement!!* đ”đ”đ”
The earlier you plan, the earlier you can!
@@NatePhilips 100% TRUTH!!
Canât stop thinking about you!
Can someone help me with the calculation pls? How did he go from 180K to 1.7M? I just recently started teaching myself about finances, so maybe it could just be a case of not having bumped into the formula yet. But thanks in advanced, i sincerely appreciate it
Yes he said the 180k is what he contributed total within that 1.7m amount he came up with. The rest is compounded growth over time from gains, reinvested dividends, etc. You can google "investment calculator" and plug in your monthly contributions and length of years. Put in anywhere from 8-12% annual rate of return. Then calculate it and it will show you exactly how it compounds over time in a chart.
Thanks Dave, exactly the info I was looking for.!
It's not. He gave bad advice. Please don't blindly listen to him
Basically,
He assumed that you would have the same amount to invest after paying taxes on the Roth vs the traditional.
Example, you make 2000 a month and pay $500 in taxes. Your bills are 1000. That's leaves you with 500 to invest in your traditional 401k.
Or you make $2000 a month, you pay 700 in taxes because you aren't investing in your traditional 401k. Your bills are the same but now you only have 300 to invest. According to Dave, you will manifest the additional $200. In reality, you would only be investing $300 and the compound interest will be less. He should have compared those numbers instead of assuming that both the Roth amount and the traditional investers would be able to scrape up the same monthly amount despite the Roth guy paying taxes on the money.
Math doesn't prove anything when you crunch the wrong numbers! Baby Steps 1-3 are great! After that, find other guides!
100% agree. The decision of whether to go Roth or not is way more complicated than that. It involves what your current tax rate is now and what you think it will be in retirement. It also involves what you would be doing with the tax savings you get from putting money in a traditional 401k. If for example your tax rate is 22% but in retirement you can see your tax rate dropping to as low as 10-12% then you would use the traditional 401k.
You have to take into consideration with a 401k you get more money now to invest, compounding and making more money to pay taxes later.
Serby
Iâd rather do Roth.
Canât argue with 1.6 million tax free and no RMD after 32 years.
Merrit
Donât forget the employerâs match
I thought about this too, but with a ROTH, you wonât have to pay any taxes on your capital gains/dividends, with traditional you will have to pay taxes on everything...
Mike Bee the math is a wash at equal tax rates. You need to read up more on this or risk lots of money. The Roth is not necessarily the best option for everyone all the time.
And take into account employer match goes traditional so they can get the tax break.
Thanks for this video! Very helpful because I had the same question.
I don't think the question of whether you will pay more taxes later than now is the right one. I think the question is, can you pay taxes more easily when you are earning money, or when you are no longer earning money?
I think comparing against $500 going into traditional 401k is not correct. Since the caller would be able to put more (say $700) in traditional for the same (-$500) deduction in income.
you're assuming that people invest the tax savings, which 99% of the time they don't. people would invest traditional vs roth , identically dollar for dollar. most people blow the savings on something else
I am 58 and have always put my contribution into the 401k because I had never been explain which would be most beneficial for me. I currently contribute 10% of my weekly income. Should I change from traditional to roth at this stage in my life?
Unless you plan on being very aggressive. Just because you're almost 60 doesn't mean you can't invest anymore. By the way, I'm 33 and I wish I invested heavily and never got into debt.
It depends on a lot of factors, such as tax rates now vs later, which state you live in, how much income you anticipate needing yearly in retirement, etc. Roth makes sense for long term because of the long growth resulting in higher yearly income aka higher tax rate. IF you are making more now than you anticipate in retirement, then you want to hold off on your taxes until you are drawing a lower amount.
Now that ignores the possibility of congress changing the tax laws, so there is always that.
@@KH-vv5dq thank you. I anticipate making less at retirement.
@@blackonblack...9244 thanks. The only good thing on my side is I have zero debt but don't own a home either.
Roth is not the only way to go. The variable is tax rate now and tax rate in retirement. For example, if your tax rate now is 25% and if you expect your retirement tax rate to be lower, do a traditional. If higher expected tax rate in retirement, do a roth. If tax rates are the same now and in retirement, your after tax balance will be EXACTLY the same.
I'm not saying Ramsey is wrong. With that said he didn't include the fact you "might" be lowering your tax rate for 30-35 years, and you might be saving 2-5% on taxes every year by putting it into a 401k.
You should always do 401k up to match, then max out Roth. Correct?
You mean Roth IRA or Roth 401(k)?
@@alrocky roth ira
@@TheRealDealNeal Yes as a rule you first want to contribute to the 401(k) company match and then max out Roth IRA. If you can afford to contribute more toward retirement continue to contribute to 401(k). You want to contribute as much as you income and budget allows knowing that the more you contribute the more you'll have at retirement. If you can afford to contribute $19,500 to 401(k) and $6,000 to a Roth IRA and wish to invest more then there a few other considerations as well as whether or not to contribute to traditional 401(k) or Roth 401(k).
@@alrocky You recommend a Roth 401K or a Traditional 401K when it comes to 401Ks and why (still trying to work out the difference)? Can you company match a Roth 401K? Still trying to wrap my head around all the different types (Roth IRA, Roth 401K, and Traditional 401K). A response would be awesome, it seems as though you know the deal. Thanks!
@@jeremiahchacha9668 Ask your HR, mine told me they do Roth match as well.
*Why not both to diversity against taxes* đ€·ââïž
Daniel Iles - Small Business
Choose one or the other. Not such a good idea to have so much money tied up in 401k when you can take the rest of your money and buy other investments like education, real estate, starting a business, writing a book and so on. Thereâs more investments to be had other than a 401k and the stock market in fact the other investments you have more control over.
@@enigmathegrayman2953 nothing prevents you from using the tax return from your traditional contributions for other investments
Most retirement strategies involve both. Max a Roth at currently 6k annually and then everything else and often matching amounts go in a tax-deferred 401k. This way in retirement you withdraw a minimal amount from the 401K (to keep you at a very low tax bracket) and then you top it off with tax free Roth money. Kind of get the best of both worlds...some tax savings while you are earning income and a large tax deferred account for retirement. Often saving 15% is going to be more than the max Roth contribution and company matches are usually on tax-deferred savings.
Marcus M. I Th ink he means just split it up if heâs already contributing 15% to his Roth why canât he just cut that down to like 10 and take the other 5 and put in in a traditional 401k
Losing compound interest if you split
Its roughly the same, if the taxed saved is compounded 30 years vs the tax the pay after withdraw. Though it will have an affect on ur ss (if it exist) and Medicare premium, so roth might be better in this case.
Help please?
So my company matches 3%. Would I just set my traditional at 3% and put 7-10% in my Roth 401k?
What's your federal tax bracket and what will be your highest federal tax bracket before you retire?
So what if you live in a state that doesnât tax 401k income, would it not be more beneficial to wait until retirement to pay taxes then?
yes definitely
That plan could work, if they donât decide to start taxing 401kâs in your state.
Also, if things stay the same, wouldnât you still have federal taxes on your 401k? And federal taxes are more than state.
Thats assuming this man will be employed every month for the next 30 years. Stuff happens and doesnt always go as planned.
buddhism daily
Stuff happens like compounding and reinvesting dividend and interest tax free.
It also assumes he doesnât get promoted or a raise
That's the least important assumption in this entire example. His assumption that $180,000 will be worth 1.5 million is fantasy land fabrication.
Company match has to be pre tax, so at the very least 1/4th of his retirement savings will not be Roth. Might as well invest the rest after tax considering his age/tax bracket.
What are the best mutuel fond I should choose for my Roth
Thank you
If you invest well, your taxes will be the same or more later. Roth is a great tax free way tomgo
Eh disagree, get the free match, then max out Roth, then go back to 401k if you want to put away more. Take that free money!
So donât take the free money Dave? Hmmmmm this doesnât make sense.
ROTH 401k youâre getting the free match âŠheâs not talking about a ROTH IRA
You also should look at State Income taxes.
If you are living in a state with high income taxes and intend on retiring in 30-40 years into a state with very low or no income taxes, a traditional has an advantage by skipping income taxes on the State level.
What are your thoughts on an MPI?
Dave just canât be that bad at math. If you make over 6 figures it makes a lot of sense to take the tax deduction now because youâll have your house and cars paid off(or should) and you will be living on a lot less maybe even below the standard deduction. There have been countless studies that show for high income earners the traditional is the way to go
Josh S As long as you donât plan to retire before Medicare good for you. As for me I plan to retire way before that and unless you have a lowish income good luck affording health care because you wonât be getting subsidies. Something to consider
He should of asked what tax bracket heâs in.
does it matter?
@@paladin3116 Yes, traditional 401k/ira will lower your taxable income. If you are in a lower tax bracket in retirement, it'd be a great option.
@@DekeMobile tax rates will increase in the future though and if he wants to live off of the same income it shouldnât matter.
@@jonnyw2323 Tax rates will probably go up in the future, yes. But your tax bracket does matter is all I am saying. Tax bracket currently and tax bracket expected at retirement.
@@DekeMobile true but with inflation, you will probably have to live off a similar income or more in retirement for it to feel the same even if you only want to live off of 80% of todayâs income
This video finally answer my question
So I'm 30 and currently have 10% going to traditional. Do I stop contributing to that and put 15% toward a roth?
What is your current Federal Tax Bracket and do expect to be a higher FTB (increase in salary) before you retire?
Thank you for this clear explanation!
This was a terrible explanation. If tax rates stay the same, you end up with the same money in both scenarios. Read Jordan Umphree's comment.
@@davidthehudson I agree. Dave completely glosses over the pros and cons of each and assumes it is as straightforward as you put in the same for both and pay less taxes with the Roth. Dave doesnât take into account current and future tax brackets or compound return from years of pretax contributions.
@@davidthehudson I agree but i think it is important to remember that people who are asking dave for advice are generally very bad with money. Best to keep the goal clear and the answers short .
One question, what if someone doesnât take out that 1.7M in same year but withdraws little bit every year?
Exactly, most people don't take everything out at once.
You are force to withdraw money by age 70.
Which best for a 1099 self employed to use Roth or traditional.
But won't the 15% you invest in a traditional be a larger amount of money since its 15% of your gross, not net, income? Wouldn't the growth in the traditional be larger? I know you'd then be paying taxes on a larger amount of money, but would it still be a $400k difference or would the gap be smaller? đ€
No, thats the misconception Dave mentioned. if you make 50k/year and contribute 15% to a 401k the deposited amount is 7.5k into either the Roth or traditional.