Roth vs. Traditional IRAs | Which One to Choose for Early Retirement?

[@sagig72]

This is your best episode that I've seen Ari. You are so good, articulate. Your points are really make sense. This is one great video Ari. Kudos to you!

[@earlyretirementari]

That means the world! Thank you so much.

[@pedrowhite911]

Very insightful video! I like the realistic and more candid approach you take to these videos instead of ones that are over edited! I found myself so programmed and ingrained in the traditional models, that your suggestions to consider not maxing out all avenues of saving right up to retirement is something to consider. Very interesting!

[@earlyretirementari]

I appreciate that! Carly, Hannah and I enjoy working with you and Pheth and hope you can take the private jet by Nat Geo soon.

[@alrocky]

7:25 "$100,000 Roth contribution @ 35% tax bracket...taxes would be *$35,000* " That is incorrect. $100k is post tax contribution so requires ($100k / 0.65 =) $153,846.15 pretax income to contribute $100k to Roth. $153,846.15 * 0.35 = $53,846.15 tax : $153,846.15 - $53,846.15 tax = $100,000 Roth contribution.

[@markb8515]

Thanks Ari for another very informative video! I liked all the scenarioes that you explained and thought that they made a lot of sense. I do like that you don't edit out all the mistakes, it seems more natural.

[@earlyretirementari]

Glad you enjoyed it!

[@DaveMatthews6708]

Great balanced video Ari! Wife and I are self employed and are big on Traditional & Brokerage savings each year. I don't think enough self employed people realize the savings that come with low health insurance cost when doing traditional contributions (max out solo 401k's (with employer percentage contributions also), trad ira's & HSA's maxed out each year) during decades of working years, then Roth conversions in 50's over numerous years and control our tax brackets until 65. We currently pay a few bucks a month on health insurance high deductible plans and are deferring all withdrawals in HSA until later is the goal.

[@earlyretirementari]

Thank yiu. Sounds great!

[@wolfeacres7099]

Neat examples toward the end. Surprised no mention of 72(t)/SEPP when discussing those retiring in their 50s.

[@earlyretirementari]

72t can be helpful but I have other episodes where I talk pros/cons!

[@ChristopherEvans-650]

No need for editing. Another insightful presentation. Just gotta get another 93k subscribers to catch James. 😜Looks like he will hit 100k within a couple of weeks. Cheers

[@earlyretirementari]

Thanks for the good remarks, maybe if you subscribe to me I can catchup! 😉

[@Mightymursey]

Love the videos! I have a 403b/401a and just started putting into the roth portion of of the 403...does this differ in any way from a stand alone (roth IRA) besides the contribution limit of $7000 of the roth?...Is mid 40's too early to become a client? when i have approx 15 more years until I realistically could retire...thanks

[@earlyretirementari]

Roth is Roth! 403(b)s have a few other benefits you can see here: www.fool.com/retirement/plans/403b/withdrawal/ Never too early to be a client if we can add value in excess of our fee. Head to our website to get started.

[@johngill2853]

I agree Roth is tax insurance in good/best case scenario But traditional is insurance for worse/bad case senerio 1. Job loss before retirement 2. Health problems causing you to retire or cut back on work 3. Very bad sequence of returns in last few years before retirement 4. Just plain tired of working and just decide to retire with less I will almost likely pay more taxes on some of my Traditional money in Best case senerio but in worse case Traditional trumps Roth. I'll gladly be the person who pays more taxes in best case scenario. But of course I will adjust my traditional/Roth descion as I get closer to winning

[@earlyretirementari]

Great points 👍🏻

[@gbski43]

Oh man, for a second there i thought you were going to say Tradional was the way to go, generally. So many videos from ari and james focus on the traditional and Roth conversions. I guess because this current retiring generation didnt really have Roth available to them til the end of their working timeline. Ari, you should do some more videos for the next gen, 30 and 40somethings and how they can be best allocating between the three buckets to be best prepared for early retirement.

[@earlyretirementari]

Thanks for the suggestion, I'll surely look into it!

[@josephjuno9555]

I went from Full Time to part time, plan to Retire next yr, Travel ect. So might do BIG Roth Conversion This yr? Next yr might be spending out of IRA, Not converting Roth.

[@josephjuno9555]

I have moderate pension near what soc sec will be so i am keeping 65/35 maybe shud be 75/25?

[@jacksammons9265]

if im 19 trying to start an IRA, should i do a ROTH because I'm in such a low tax bracket right now? I'm working part time not making more than 25000 a year. let me know!

[@earlyretirementari]

You're thinking about it right! www.fool.com/the-ascent/buying-stocks/articles/just-starting-your-career-heres-the-best-way-to-save-for-the-future/#:~:text=Bottom%20line,tax%2Dfree%20income%20in%20retirement.

[@josephjuno9555]

Good info, Keep it Real! Over editing is annoying

[@earlyretirementari]

Noted and we'll work on it!

[@jher-e6i]

Sorry, when your examples/clients ,don't represent the majority of people watching here, it is hard to listen, follow you.

[@Andocus1213]

In 95% of the cases Traditional is the way to go for Early retirees. Rationale: 1.high income during working career is typically followed by lower income during retirement 2. Ability to perform Roth conversions prior to SS payments

[@markbernhardt6281]

The Roth vs. Traditional scenario has a fatal flaw, the Roth put in 100,000 (and paid 35,000 in tax) to do so. The Traditional could have put all 135,000 in and grown that to 540,000 instead of 400,000. The roth person decided to take 35,000 out of the market and give it to the government.

[@JRRob3wn]

Nobody is paying 35% on $100k.

[@earlyretirementari]

You can watch this video and it'll surely help you in understanding: kzbin.info/www/bejne/d3Saknuep6-Ar5I

[@markbernhardt6281]

@@JRRob3wn Those aren't numbers I chose, they were chosen to make things easy. A pre-tax contribution to a 401K of 10,000 in a standard 401K is a lot less than contributing 10,000 to a roth 401K because the Roth is post-tax money. Just basic math here. The balance on the standard 401K will be more for the same paycheck sacrifice.

[@JRRob3wn]

@@markbernhardt6281 Are you just finding out the difference between these accounts? You sound like you think you just discovered something amazing. Congratulations! By the way, the effective tax rate on $100k would be about 15% or $15,000, a far cry from 35%.

[@Timetohavefun-YT]

The spirit of this comment is that you can’t ignore the opportunity cost of the 35k tax savings from the pre tax approach. Maybe you take that extra 35k, throw it into VTI. Using the same 4x scalar, it grows until you retire which would end up being 140k. (400 + 140) * 0.78 = 421k. This is net larger than the ROTH approach where you end up with 400k.

[@josephjuno9555]

Our favorite answer = it depends?