Which Takes Priority 401(K) or Roth IRA?

Do you have extra cash flow every month, no high-interest debt, and a strong emergency cash cushion? Then you’re probably ready to start building your wealth more actively! But where should you start? 401(K) or Roth IRA?
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[@dylancraig249]

I Love how you speak about these topics, and go the way you go over the questions and debates most people would have actively watching your content.

[@shelby_shaw]

I just switched up my Roth IRA to 50% SCHD, 25% SCHX, 25% SCHG, and my Roth 401k is 70% vanguard S&P 500 index, 20% vanguard growth index, and 10% vanguard international index. Seeking best possible ways to grow $350k into $1m+ before retirement in 3 years.

[@Makingriot]

consider financial advisory so you don’t keep switching it up... those sound like great picks anyways, not bad for 350k

[@Marquis-9]

Agreed, I'm in line with having an advisor oversee my day-to-day investing cos, my job doesn't permit me the time to analyze stocks myself. Thankfully, my portfolio has 5X in barely 5 years, summing up nearly $1m as of today.

[@Curran-m-i]

@@Marquis-9 this is huge! would you mind revealing info of your advisor here please? in dire need of portfolio rebalancing

[@Marquis-9]

She goes by ''Katherine Nance Dietz'' a seasoned advisor with over two decades of experience. You can research her further on the web.

[@SergiannaPawson]

curiously inputted Katherine Nance Dietz on the web, spotted her consulting page at once, and was able to schedule a call session. Ive seen commentaries about advisors but not one looks this phenomenal

[@Bondbeer]

Good video. Another point is that tax brackets are adjusted for inflation every year so even if your retirement income is the same as when working you may be in a lower tax bracket due to inflation adjusted income tax brackets.

[@Reza_Audio]

great video, I am lower income bracket, make gross income about $40k. I made a spredsheet to see what are my all annual expenses and how much I need to save for my Emergency Fund, then I came up with 10% for 401k and 5% of my after taxed income (after deducting for my expenses and EF) formy Roth IRA. in this way I can gradually fullfill my expectations of EF in short term even though I cannot max-out both my accounts. when I am finished with my EF, I will increase my contribution rate in both a little bit

[@helloworldcsofficial]

Easy to understand. Great vid, Katie. Thanks!

[@bdtn342]

This is exactly what i was looking for. Thank you

[@sarahsunsetpark]

Hi Katie, one thing that will put people in a higher tax bracket in retirement, are RMD’s (required Minimum Distributions) if you save a lot and you have a healthy 401(k) or IRAs you could end up with a hefty RMD, and SS which could put you in a higher tax bracket. And depending on your birth year, you have to take RMD s at ages 70, 72,75. For instance, I am going to postpone my Social Security to 70 and then five years later I will have to start taking RMDs and if I grow my 401(k) and IRA‘s as I hope to do, I will definitely be in a higher tax bracket that I am today. So people need to keep that in mind because uncle Sam will want his tax cut from your retirement account eventually. Hopefully your wealth builder plan tool will include retirement distributions, RMDs for those of us, moving into the retirement stage, and no longer in the accumulation stage. Really enjoy your videos. Keep up the good work! I hope my 23 year old niece is will follow you and learn from your excellent videos.

[@MoneywithKatie]

Thank you Sarah! We cover this in the deep dive episode we did on this - but yes, you're right!

[@patrickneely124]

Great information, however, you are incorrect about not being able to deduct traditional IRA and 401k. There are income limitations (116k adjusted gross income for married filing jointly as of right now or 73k single). This is set by IRS every year.

[@WeBeatMedicare6969]

Yeah, I did a double take when she said that

[@patrickneely124]

@endofquoterepeattheline7516 most of these gurus are so laser focused on ROTH IRA that they don't stop to think that the more pre-tax income you can invest the faster you will be able to build wealth. A game changer for most middle class folks. These vessels you can borrow against and pay no taxes, who cares about the tax burden on the forced distributions later on down the road when you finally retire.

[@myceliummm]

I puckered up a bit and then immediately looked it up. She said it with such confidence that I second guessed myself.

[@RRW359]

Also one thing I often don't hear about, #3, if you sincerely believe you will have a higher income when you retire why on earth are you saving for it? I guess if you just want passive income while also working there is a point to a roth (aside from just diversifying for the sake of it) but if you are saving specifically for when you are unable to work and have to rely on emergency funds like 401k's you will be in a lower bracket when you have to take money out.

[@eile4219]

I like the traditional 401k better because I will have more put into my brokerage account. But I don't have math on what is better. If I have a higher tax rate at 60s, then I don't mind paying more tax. That means I'm doing so well,

[@kckuc310]

I’m at 40 percent tax deferred, 12 percent cash, 15 percent investments, 13 percent Roth the rest in house and automobiles

[@jonbledsoe7158]

That was the best video I have ever seen on the 401k ❤❤❤

[@Learosie33]

Such an awesome, clear, intelligent video. Very legit

[@jieelyuu]

Been researching on this topic on KZbin for a day. You did a better job than all other KZbinrs i watched

[@Username_CC_]

Going from 10% 401k to maxing it is like more than 30% of a paycheck omg

[@easyrawlins2392]

Please understand that she gives great advice I'm just disagreeing on one issue.

[@TheJeanean]

I have heard, contribute to 401k enough to get the full match. Then work on maxing out ROTH. Then with leftovers contribute to 401k or traditional ROTH.

[@johngill2853]

Most people pay less taxes in retirement making a traditional account better But that doesn't necessarily mean you're most people. Simply work with and figure out the optimal combination of Roth and traditional for your situation

[@TravelingTheWorld1993]

Roth IRA or Roth 401(k) 's can help you save on taxes in retirement. Not only are withdrawals tax-free at 59 1/2 , it won't impact the taxation of your Social Security benefit and Medicare premiums.This is an important aspect of a Roth accounts that most people are not aware of.

[@asianstud7]

Are you sure? But why the difference?

[@johngill2853]

Overwhelming amount of people pay less tax in retirement. If you find that isn't you use a tax calculator to figure out a good combination of Roth and traditional

[@asianstud7]

@@johngill2853 can you direct me to a good calculator? I couldnt find one online that was suitable. thanks

[@mandypdx]

@@asianstud7because it is treated like money under your mattress and not income (you already paid taxes on roths)

[@charlesbyrneShowComments4all]

@@johngill2853 the social security tax is based on provisional income bracket that hasn't been adjusted for inflation and is based on the value of a dollar in the early 1990s. Inflation in Dec 2023 is 222% higher than it was in 1992 and growing. The average annual social security benefit is around $21k the standard deduction is $12K for single and $24k for MFJ. Provisional income (social security, municipal bonds plus taxable income like 401K withdrawals) Single filers: between $25k-$34k will result in up to 50% of social security being included in taxable income and over $34k up to 85% of social security is taxable MFJ: Between $32k-44k up to 50% of social security is taxable and over $44k then 85% is taxable

[@crizdancemedia]

What if the company doesn’t do company match? Would it be ideal to invest in a 401(k) or 403B first in that situation or invest in Roth IRA first?

[@rolandosouffrain7957]

Lol. So many people say Roth is better. Even Dave ramsey. Lol. Would u rather have 2 million it 20 to 30 yrs tax free or have to pay tax on it?

[@quintonstevens]

The point here is this: would you rather have $2.5m in 30 years tax free, or $3m in 30 years that you have to pay a smaller percentage of tax on? Deducting $200 take home from your paycheck gets you $250 invested into a normal 401k, or just $200 straight into a Roth. The additional money you're able to invest is going to compound over the 30 years. And while you will owe taxes on it, the benefits of compounded accumulation will outweigh the fact that you finally have to pay taxes on it. Your deferred income you take in retirement will be taxed up the tax ladder too, meaning the first ~$29k (if married) is untaxed (standard deduction), the next ~$23k is taxed at 10%, and then the next $71k is taxed at 12%. That means you just paid ~$10,800 on $123k of income. That means you paid an effective 8.8% tax rate with money that you took off the TOP of your income originally (so, money that was going to be taxed at say 22%). That's $16,000 less in taxes paid on the same income for a single year.

[@rolandosouffrain7957]

@quintonstevens lol I maxed out my Roth 401k at $23k I maxed out my Roth I.R.A at $7k. In 30 yrs my future self will need all my money 💰 and not to mention mandatory RMDs. Who needs more money 💰 me today or my future self at retirement 🤔 hmmmm

[@arzdiamondbacks]

@@rolandosouffrain7957 Roth 401k is a terrible idea if you are in the 22% tax bracket or higher.

[@rolandosouffrain7957]

@arzdiamondbacks lol. No it's not. Look up the money guy. It's 24% and up. Good thing I'm not in 22 or 24% lol 😆 😂

[@arzdiamondbacks]

@@rolandosouffrain7957 That's fine if you're under 22% bracket, but for those looking to retire early, traditional 401k is always better.

[@cesjr]

Would 401(K) rules apply to SIMPLE IRA's ass well? I work for a smaller company and are offered SIMPLE IRA's with a 3% match, $15,500 deferral limit in 2023.

[@CBW0314]

I make $91,000 in California and my marginal is 22% and I’m 24 yrs old. Doesn’t it make sense for me to contribute to Roth if I intend to spend significantly more at age 65 than what I’m making now at age 24? Spending and earning a lot now doesn’t necessarily mean you won’t spend more on the future, right?

[@MoneywithKatie]

I wrote a piece on this that might be helpful! moneywithkatie.com/blog/will-you-be-in-a-higher-tax-bracket-in-retirement-its-almost-impossible

[@CBW0314]

@@MoneywithKatie 😘

[@Ziony23]

What is ur Career?

[@delmarstewart]

Good video but what about increased tax brackets in the future (jobs act expires soon) and the widow tax torpedo in later retirement/ medicare costs etc. tax free roth 401k/ira keeps you clear of these higher tax/income issues.

[@johngill2853]

Most people don't have no worries about those issues (they don't save enough) If you do forecast a tax problem then run the numbers and figure out the best combination of Roth and traditional

[@zlparrish]

I appreciate that you give sophisticated information, and put it simply for viewers while also treating us with respect intellectually

[@Kevin-fn1rn]

Imagine thinking the gov won’t increase taxes in the future lol. Roth all the way

[@johngill2853]

With the median retirement savings most people don't forward that higher taxes in the future in retirement