Why Should I Choose A Roth 401(k) Over Traditional?

[@Hannahbenowitz]

Increasing tax rates are the reason I rolled over my 401k to a Roth. I don’t want to be 59 paying taxes on current income on withdrawals made from my retirement account.

[@JosephineKenney]

Effective personal finance management matters more than the income source, whether from a job or investments. A certified financial advisor can offer tailored guidance to reduce expenses and boost income, optimizing your financial situation.

[@PennyBergeron-os4ch]

I completely agree; I have approximately $650k 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, the Fin-advisor can only be neglected, not rejected. Just do your due diligence to identify a fiduciary one.

[@HildaBennet]

This is exactly how i wish to get my finances coordinated ahead or retirement. Can I get access to your advisor?

[@PennyBergeron-os4ch]

Mine's Sonya Lee Mitchell. She turned out to be better and smarter than all the advisors I ever worked with till date, I’ve never met anyone with as much conviction.

[@HildaBennet]

I ran an online search on her name and came across her websiite; pretty well educated. thank you for sharing.

[@elmond23]

I would like to take a moment to appreciate how polite and respectful Fernando from Texas is.

[@ray89or]

For real

[@HectorSnipes]

The biggest financial mistake I ever made was with my 401k. My company offered a Roth 401k during the years my kids were in college, but I didn't start contributing until the third year out of the six years they were in school. Since I was helping with their expenses, I qualified for tax credits, which meant my effective tax rate was very low. That’s exactly when I should have been investing in a Roth! Even so, I still managed to retire with about $350k in my 401k.

[@BateserJoanne]

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.

[@grego6278]

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.

[@MaxSabbath666]

Retire with only 350k? Wow. What else do you have? Real estate?

[@whatsup24_7]

That 350k will go quick

[@lolitashaniel2342]

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.

[@caseybills5517]

Investing in Roth IRA can be a good choice since they are funded with after tax dollars, your contributions can grow tax-free over time. When you withdraw money from your Roth IRA in retirement, you won’t have to pay tax on it, which will help you keep more of your hard-earned money. I retired with 5 million dollars

[@JamesLongman-v5r]

If you’re new to investing or have a more complex financial situation, It can be helpful to work with a financial advisor who can provide personalized guidance and help you make informed investment decisions.

[@TylerJamestown]

Due to the market falls, I need advice on how to rebuild my portfolio and develop more successful tactics. Where can I find this teacher?

[@lolitashaniel2342]

I just curiously searched her up, and I have sent her an email. I hope she gets back to me soon. Thank you

[@nicolasbenson009]

Becoming a millionaire through a Roth IRA or a 401(k) involves different strategies for maximizing profits. A Roth IRA offers tax-free withdrawals in retirement, which can be advantageous if you expect to be in a higher tax bracket later in life. On the other hand, a 401(k) provides tax-deferred growth and potential employer contributions, boosting your savings. The optimal choice depends on factors like your current and future tax situation, employer match, and investment options. Consulting a financial advisor can help tailor a strategy that aligns with your financial goals and circumstances.

[@TinaJames222]

Prioritizing effective personal finance management holds greater significance than the sheer amount saved, irrespective of income source. Consulting a certified financial advisor can offer tailored strategies to optimize financial results by reducing expenses and enhancing income, regardless of whether it's earned through employment or investments.

[@tatianastarcic]

I wholeheartedly concur. At 62 years old and newly retired, my external retirement funds total around One million two hundred fifty thousand dollars.. With no debt and minimal retirement fund allocation relative to my portfolio's value over the last three years, I recognize the importance of a financial advisor. Neglecting them isn't an option; however, thorough research is vital to find a trustworthy fiduciary advisor.

[@ScottKindle-bk3hx]

How can I reach this adviser of yours? because I'm seeking for a more effective investment approach on my savings

[@tatianastarcic]

There are a handful of experts in the field. I've experimented with a few over the past years, but I've stuck with ‘’ Melissa Terri Swayne” for about five years now, and her performance has been consistently impressive. She’s quite known in her field, look-her up.

[@BellamyGriffin19]

thank you for this tip , I must say Melissa, appears to be quite knowledgeable. After coming across her online webpage, I thoroughly went through her resume, and I must say, it was quite impressive. I reached out to her, and I have booked a session with her.

[@EthanBrown_23]

Diversification is the secret to optimal performance. This is why I have my interests set on market sectors based on performance and projected growth, such as the EV sector, renewable energy, Tech, and Health. Keep investing regularly and you'll be blown away how much it can change in a few short years. Here's to $1 million and to FIRE

[@SarahTaylor_]

During a recession, investors must understand where and how to distribute capital in order to hedge against downturns while being profitable. If you are unable to navigate the market, speak with an expert advisor.

[@DavidLucas-so8rr]

Several individuals minimize the importance of counsel until their own feelings become overwhelming. A few summers ago, following a protracted divorce, I needed a significant push to keep my firm afloat. I looked for licensed advisors and found someone with the highest qualifications. She has contributed to my reserve increasing from $275k to $850k despite inflation.

[@RobertBrown..]

That makes perfect sense; you seem to have a better understanding of the market than we do. The coach is who?

[@DavidLucas-so8rr]

'Laurelyn Gross Pohlmeier' is the licensed advisor I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment.

[@debbygradley25]

Thank you for the lead. I searched her up, and I have sent her an email. I hope she gets back to me soon.

[@susannnico]

This is financial advice and I never give financial advice: DONT LEAVE DURING THE BEAR. If you don’t want to invest…learn. If you don’t want to learn…build. If you don’t want to build observe. DO SOMETHING…other than leave. There is so much opportunity here. Take advantage!

[@elaineschultz6430]

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.

[@michaelrivera2080]

Starting right now! Literally

[@NoName-be5ir]

I learned about this at a late age. I have a retirement through my job 401A. And I’ve started a Roth IRA just a few years ago. Now I’m 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.

[@JoseRodriguez-zq6nh]

Where do I go to start

[@user-hn9qg5qm3o]

@@NoName-be5irI’m 38…is it too late?

[@beemrmem3]

@@user-hn9qg5qm3o it's not too late. You can retire when you're 65 if you invest aggressively

[@r4ym1n13]

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

[@sjhdfbasndf986]

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

[@EMo-rx7pm]

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.

[@r4ym1n13]

@@EMo-rx7pm take advantage of the historic low taxes & low interest rates now no doubt about it

[@brandonpeterson6306]

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.

[@jerrydavishnful]

@@EMo-rx7pm L

[@EthanRaynolds]

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.

[@JacobWalker-jx3nf]

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.

[@WilliamsJones-jx1ce]

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.

[@HarperScott-pk6uk]

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.

[@OliviaParker-rx3ni]

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.

[@HarperScott-pk6uk]

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.

[@njwilson2012]

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.

[@jamespungello8361]

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.

[@weissnacht892]

I was thinking the same thing. He sells it like Roth is always better period, without exception. He even says that at the end. It’s not cheaper, it’s 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.

[@JourneyontheTrail]

Well said... Thought the same thing.

[@ajar1189]

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)

[@benden5095]

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

[@ConradGosling]

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?

[@stevensmiddlemass2072]

Just try to diversify your portfolio to other market sectors, that way your investment is balanced and you don’t get to make so much losses

[@primeramujer2138]

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?

[@primeramujer2138]

I've come across a lot of recommendations but this one stands out. Kaitlin’s resume is pretty sophisticated, and shows she was active during the last bear market, I also emailed her. Thanks for the info!

[@karlandjeff]

Scam

[@DavidGarcia-lu7jj]

I’m so glad I found Dave at 13 😂

[@SantosProd]

Great job to!

[@agfb4039]

I was confused in my tabs and thought you meant Dave Chappelle

[@Chinese080808]

Get started and try to avoid the temptations. 😉

[@hexagongaming7462]

Same here 😂😂

[@FrostyCoug]

Just don’t fall behind on them video games )

[@esonon5210]

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.

[@dylanstandridge3201]

700 at max contribution answers the question. He doesn’t make crazy amounts.

[@esonon5210]

@@dylanstandridge3201 how do you know that?

[@dylanstandridge3201]

@@esonon5210 700 dollars for a month at max contribution of a little over 20%. The math on that means they’re making 3-4K a month if it varies. So it’s safe to say 36-48k per year.

[@esonon5210]

@@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.

[@esonon5210]

@Andrew you’re 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 they’re 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.

[@geodavras]

Started when I was 22 I’m so excited

[@FelineAirstrip]

My target retirement fund in my 401(k) had poor returns compared to the S&P 500. I switched everything to the S&P 500, but I regret not doing it earlier. What are the best options for investing $200k for reliable cash flow?

[@SaintYvess]

The key to big returns is not big moving stocks. It's managing risk in relationship to reward. Having the correct size on and turning your edge as many times as necessary to reach your goal. That holds true from long term investing to day trading.

[@WestonScally7614]

Even with the right technique and assets some investors would still make more than others, as an investor, you should’ve known that by now, nothing beats experience and that’s final, personally I had to reach out to a market analyst for guidance which is how I was able to grow my account close to a million, withdraw my profit right before the correction and now I’m buying again

[@sting_grayl]

impressive gains! how can I get your advisor please, if you dont mind me asking? I could really use a help as of now

[@WestonScally7614]

Credits goes to "Marissa Lynn Babula" one of the finest portfolio managers in the field. She's widely recognized; you should take a look at her work.

[@EthanMaloney-qp4lh]

I just looked her up on the internet and found her webpage with her credentials. I wrote her a outlining my financial objectives and planned a call with her.

[@Barweezy]

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!

[@jorgevivanco6046]

You made my day. You deserve more credit for this.

[@nautical1078]

Schools aren’t there to teach one particular procedure, it’s there to teach you skills that you can apply to learn those procedures. Plus, you can take financial mathematics courses if you want.

[@johnconnor7501]

I haven’t laugh so hard all year. Thanks

[@adiaz1182]

Schools are designed to train you to work for someone for the rest of your life. They don’t teach you how to become wealthy. Won’t be enough working bees 🐝..

[@missouripatriot6926]

I mean we do have personal finance. Clases at my school and we watched dave ramsy videos

[@ryanpeurifoy9121]

Dave the question you didn’t 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.

[@harryallenpearce89]

It’s not possible to know what the tax rate will be in 30 years. That’s why you should always choose Roth.

[@mikeg4960]

If you’re not working in retirement, would your income be zero, which means you’re rate will always be lower taxes in retirement?

[@stevehallam597]

Yes, and then its essential that marginal and effective tax rates are included.

[@randymorrison1761]

he asked his income. smh re-watch the video

[@randymorrison1761]

@@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.

[@jordanumphress9555]

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.

[@bman4939]

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.

[@jordanumphress9555]

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.

[@bman4939]

@@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.

[@bman4939]

@@jordanumphress9555 Yes, but there is a loophole where high- income can contribute to a Roth IRA. They can roll-over into one i think.

[@stevehallam597]

The rates across the relevant income brackets and the standard deduction for the traditional (i.e., all income taxes actually paid).

[@AverageJoeInvestor]

*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 DON’T KNOW what future tax rates will be! They’re low now though and likely to go up in the future...GREAT VIDEO DAVE! 😎👍🏻

[@MaximilianFischer497]

Most of my $2m portfolio is in (20% Index funds, 20% CD's 30% Bonds/T-bills and other assets) but I want to explore different strategies for better growth with the current market, just here for ideas

[@MarshalWagner457]

This is the exact thought process of persons handling their portfolio themselves. I will advice you engage guidance to help you make smarter portfolio decisions.

[@EvelynBrooks0]

I've been through the 'bonds are beating stocks' periods since the 90s with no bonds and with all aggressive stock mutual funds. Currently, my IRA and cash accounts are far more than I expected for my retirement. I can easily handle a worst-case 80% stock crash, Thanks to my CFA.

[@TicheDebb0]

Can you share details of your advisor? I want to invest my increased cash flow in stocks and alternative assets to achieve financial goals.

[@EvelynBrooks0]

“Sonya Lee Mitchell” is the advisor I use and i'm just putting this out here because you asked. You can Just search the name. You’d find necessary details to work with to set up an appointment.

[@AshleySommerset808]

Thank you for the lead. I searched her up, and I have sent her an email. I hope she gets back to me soon.

[@AlbertGReene-p8w]

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 I’m left wondering what 2023 has in store for us investors, I’ve been sitting on over $745K equity from a home sale and I’m not sure where to go from here,

[@viewfromthehighchairr]

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

[@devereauxjnr]

@@viewfromthehighchairr 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.

[@billclinton-f8n]

@@devereauxjnr 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.

[@devereauxjnr]

@@billclinton-f8n 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.

[@billclinton-f8n]

@@devereauxjnr 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.

[@TedisBookNook]

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.

[@NatePhilips]

Respect that for your age!!

[@monkas7270]

how much do you tithe

[@KH-vv5dq]

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.

[@user-td7xf3gz4l]

@@monkas7270 none

[@KennedyVerbruggen]

Recently, I've been pondering retirement, unsure if my 401(k) and IRA will provide a stable future. I've also put $800K into the stock market, encountering fluctuations with limited gains. i need an approach that will align with my risk tolerance and financial goals

[@SavannahMitchell-b3d]

Using a 401(k) or IRA is a valuable strategy for retirement planning, providing potential savings growth and tax advantages. While the stock market is promising, expert guidance is essential for effective portfolio management

[@NorthCarolinaForward]

It's true that many people underestimate the importance of advisers until their own feelings burn them out. A few summers ago, following an ongoing divorce, I needed a significant push to keep my company afloat. I looked for licensed advisors and found someone with outstanding qualifications. She has contributed to my reserve increasing from $275k to $850k regardless of inflation.

[@firefighter-i6q]

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.

[@NorthCarolinaForward]

Rebecca Nassar Dunne is the licensed advisor I use. Just search the name. You’d find necessary details to work with to set up an appointment.

[@brantheeskimo]

I just Googled her name and her website came up right away. It looks interesting so far. I sent her an email and i hope she responds soon.

[@TS_Esquire]

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.

[@Lamonn2014]

$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.

[@2hot2handle65]

I think Roth only makes sense if you have no debt.

[@BachBeethovenBerg]

@@2hot2handle65 According to Dave's plan though you don't put anything into retirement until you're debt free.

[@2hot2handle65]

@@BachBeethovenBerg Right. I followed his plan this year due to inflation. I put the maximum amount allowed into a Roth IRA.

[@DH-lm6kh]

​@@BachBeethovenBerg which is incredibly stupid... lol

[@Ali-Muscle]

Precisely! I want more money in my pocket …. NOW

[@Imhere12345]

This man has respect and you can tell he will listen

[@Pit-Boss1977]

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.

[@beemrmem3]

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).

[@cyropox8235]

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.

[@misaelhdez5162]

​@cyropox8235 same me is better no one knows the futures I got my traditional and my roth 401k

[@LB1280]

I guess it depends on everyone’s 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 you’re making more money now compared to when you retire. If you have a pension, social security, and you’re 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 you’re retired than when you’re in your working years so you’ll likely be in a lower tax bracket.

[@workingguy-OU812]

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.

[@johngill2853]

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

[@2hot2handle65]

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.

[@jimmoore3767]

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.

[@aaronsacks470]

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.

[@ElvenClaw]

Yeah most likely people are spending that extra 50 being Dave’s point. If you invest it, it should work out similar.

[@RoyLGamer]

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.

[@bigp8871]

vincentrich - Banned But Not Forgotten I’m 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

[@b.sharp.]

@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

[@KeyvonGreen]

Agreed I’m not sure he explained this well

[@luisenriquerivera3145]

Disagree. What he is saying is that usually people contribute the same amount, wether it’s to a Roth or Traditional. So you would have 1.7 million in both accounts.

[@RoyLGamer]

@@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.

[@VinnyOrzechowski]

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

[@mattbenz99]

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.

[@jamariquewynn878]

Thanks Dave. I just started my career out of college. I am 21 and debt free with my emergency fund.

[@ThatsJustEric]

Great start

[@CallMeTheTyler]

@@nicke4reallol

[@SluJames]

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?

[@charlesteffeteller6402]

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.

[@mattbenz99]

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.

[@landlubber42069]

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.

[@johngill2853]

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.

[@mannylora]

This is exactly my theory too. We are spending way too much and it’s gotta be paid somehow in the form of higher taxes in the future.

[@jongoldenstein5449]

Need to add the effects of marginal vs effective tax as well as the effects of AGI based credits and deductions to your analysis.

[@crysishero1212]

Here’s is my confusion, if you put after tax investment into a Roth, then you don’t 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

[@metaltera86]

Yes and not to mention you can’t contribute as much per year compared to a 401k. Just be like me and have both

[@elbry4]

@@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.

[@DailyMeditation365]

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

[@Silidons91]

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?

[@williammuff5485]

@@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..)

[@deexero]

@@Silidons91 but I invest my $1500 in something else like a house recently....

[@Silidons91]

@@deexero what

[@WeBeatMedicare6969]

@@Silidons91 you’re not gonna have just 45k in your example…30 years of 0% gains? Lol

[@philiposborn9141]

Depends on your salary

[@Steveo_00700]

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.

[@brianmcg321]

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.

[@JivanPal]

@@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).

[@blackworldtraveler3711]

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.

[@Steveo_00700]

@@sent18inel , The 4% rule is a rule of thumb for withdrawal rates from retirement savings.

[@JivanPal]

@@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.

[@cherrytung]

*Never too early to think about retirement!!* 💵💵💵

[@NatePhilips]

The earlier you plan, the earlier you can!

[@cherrytung]

@@NatePhilips 100% TRUTH!!

[@bindang7191]

Can’t stop thinking about you!

[@GoldAMG]

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.

[@Caesar__99]

Agreed. I was very confused that he just simply said they'd both have 1.5 million.

[@robshell5367]

It all hinges on what taxes are many years from now. Most likely they will be much higher.

[@GoldAMG]

@@robshell5367 no way to know. “Most likely” based on what?

[@111689josh]

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.

[@GoldAMG]

@@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'.

[@off-gridengineering3377]

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.

[@ammar3094]

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

[@patrickli804]

@@ammar3094 what if I have rental properties when I retire and I don't right now.

[@DH-lm6kh]

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

[@off-gridengineering3377]

@DH-lm6kh mathematically, it's not any better.

[@DH-lm6kh]

@@off-gridengineering3377 lol yes it is, because the earnings are tax free...

[@Queenk0526]

I think for most folks especially those who make 50k a year or less and won’t see any major income growth their tax situation will probably be a wash in retirement.I’ve 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.

[@patty109109]

As usual terrible math by Dave. Instead of $500 into Roth this guy could have put in $700 pretax into a 401k. Roth ONLY is better if tax rate is lower now than later.

[@BrooklynCapo]

explain more please. you have enough likes to convince me you know your stuff.

[@JorgeAlmazan]

Brooklyns Capo the only thing that we really need to take into account is what your taxes are today vs what they will be in the future. We know that tax rates are at historic lows today... so some would argue you should be paying taxes today with a Traditional. However you’d be losing out on the tax free growth element. I think the best is to have some money in Traditional, some in Roth, and even some in Taxable accounts for flexibility and early retirements. That way regardless of future tax rates you can withdraw retirement from the account(s) that make most sense during that year.

[@harrisonwintergreen1147]

Small taxes today rather than big taxes tomorrow is not bad math.

[@JorgeAlmazan]

harrison wintergreen problem Is you don’t know what your taxes will be tomorrow. You don’t know how much you’ll be withdrawing per year at retirement nor can you know the tax rates in the future for your new tax bracket in retirement. It may be more than you’re paying today, may be less. When you do the math it actually comes out to the same outcome assuming tax rates remain the same.. which they won’t. Best advice is to have some in both Roth and Traditional. I’m personally only doing Roth today. But in the future, when I make over the Roth limits I intend to use traditional.

[@MetalBum]

patty109109 I think tax rates will be much higher in 20+ years

[@mattwalter6207]

Dave: Heres the math why Roth is better Also Dave: The math isnt important

[@cancel.lgbtq.6892]

Just waiting to hear Dave call this guy " honey " any moment now ~

[@ortiz12986]

Quid pro joe 😂😂

[@donsnook8335]

Lol. Perfect.

[@rajeshamara]

one thing people forget is those comparisons are not apples to apples. When you are putting $700 dollars in 401K it is not same as putting $700.00 in ROTH. for apples to apples, if you are in 25% tax bracket and put $700.00 in ROTH, it is same as putting $933. 401K. (ROTH is after tax and 401K is pre tax). If you are in the same tax bracket it doesn't matter. Also in the end you will come ahead choosing 401K over ROTH

[@NormanGhali]

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.

[@AddilynTuffin]

Remember that investing in the stock market carries risks, and it’s important to do your own research and consult with a financial advisor before making any investment decisions.

[@DanielPanuzi]

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.

[@albacus2400BC]

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?

[@DanielPanuzi]

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.

[@judynewsom1902]

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.

[@pbbond4]

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, wouldn’t it make more sense to benefit off the tax breaks now with Traditional as opposed to in retirement with Roth?

[@Silidons91]

have taxes increased or decreased over the years? answer that...

[@ddddoc7078]

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

[@dw1419]

Three letters: *RMD*

[@jgallone]

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.

[@steveb2616]

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 aren’t sure about your future tax burden it helps knowing you have a little bit of both in the future.

[@Steve-vd3nx]

@@steveb2616 this is exactly my logic and why I contribute Roth. Because now with the match my 401k will be 50/50 traditional/roth

[@modap3000]

He totally ignores the taxes paid before contributing to the Roth.

[@bones2620]

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.

[@blackworldtraveler3711]

modap3000 I don’t mind that he don’t know me or my situation. I can figure out that part on my own.

[@run_deng]

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

[@humblehumility7797]

@@run_deng so you only have a Roth 401k not both right? I barely got one and I was figuring out the difference....

[@ms-xm5pj]

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.

[@ryebread447]

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?

[@firebirdlover4460]

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.

[@shanelu87]

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.

[@mv-db4463]

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?

[@williammuff5485]

@@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.

[@kristophamiller4501]

This video finally answer my question

[@Je.rone_]

*And can't help but think the income tax rates will increase in the future, maybe by a non-trivial amount* 💪

[@maxn6276]

To true, I like the peace of mind that no tax changes will effect my retirement

[@Je.rone_]

@C B 😂

[@stevee8318]

They could just as easily change the tax rules that apply to Roths.

[@damiangrouse4564]

Steve E That’s always been my point when talking about this subject...”bird in the hand” (tax savings now) for me.

[@hubster4477]

@C B stock market does better with democrats in office.

[@dvran]

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.

[@blackworldtraveler3711]

Serby I’d rather do Roth. Can’t argue with 1.6 million tax free and no RMD after 32 years.

[@superfly19751]

Merrit Don’t forget the employer’s match

[@MikeBee77]

I thought about this too, but with a ROTH, you won’t have to pay any taxes on your capital gains/dividends, with traditional you will have to pay taxes on everything...

[@bryanpoulsen8969]

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.

[@bkt730]

And take into account employer match goes traditional so they can get the tax break.

[@Robmar40]

He doesn't take into account of the tax break, company match, location, and income after retirement when comparing Roth vs Traditional.

[@Robmar40]

@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.

[@Sexy40baby1]

@C B yep

[@HenryPaulThe3rd]

If taxes go up (which they will) the Roth will be a better deal

[@Originalman144]

@C B Then stop watching the channel and start your own channel giving out your better advice, sensei.

[@MilanBroz]

@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.

[@imnotdavidxnsx]

He starts off saying you should put "15%" in if your house is not paid off....and ends by saying Roth is better because when you invest, you invest a flat amount like $500 either way. Except, that would contradict his earlier statement, since $500 may be over 15% as a ROTH contribution and $500 may be 15% or below for a traditional contribution, meaning the traditional would be the way to go by his 15% rule.

[@pondboy3682]

Math doesn't prove anything when you crunch the wrong numbers! Baby Steps 1-3 are great! After that, find other guides!

[@ariefraiser140]

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.

[@alexsteven.m6414]

Becoming a millionaire through a Roth IRA or a 401(k) involves different strategies for maximizing profits. A Roth IRA offers tax-free withdrawals in retirement, which can be advantageous if you expect to be in a higher tax bracket later in life. On the other hand, a 401(k) provides tax-deferred growth and potential employer contributions, boosting your savings. The optimal choice depends on factors like your current and future tax situation, employer match, and investment options. Consulting a financial advisor can help tailor a strategy that aligns with your financial goals and circumstances.

[@antoniaribeiro8073]

Prioritizing effective personal finance management holds greater significance than the sheer amount saved, irrespective of income source. Consulting a certified financial advisor can offer tailored strategies to optimize financial results by reducing expenses and enhancing income, regardless of whether it's earned through employment or investments.

[@NorthCarolinaForward]

I wholeheartedly concur. At 40+ years old and newly retired, my external retirement funds total around One million two hundred fifty thousand dollars.. With no debt and minimal retirement fund allocation relative to my portfolio's value over the last three years, I recognize the importance of a financial advisor. Neglecting them isn't an option; however, thorough research is vital to find a trustworthy fiduciary advisor.

[@belobelonce35]

How can I participate in this? I sincerely aspire to establish a secure financlal future and am eager to participate. Who is the driving force behind your success?

[@NorthCarolinaForward]

Actually its a Lady. Yes my go to person is a ‘Rebecca Nassar Dunne'. So easy and compassionate Lady. You should take a look at her work.

[@MarcyLoccy]

She appears to be well-educated and well-read. I ran a Google search on her name and came across her website; thank you for sharing.

[@andrejensen8064]

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.

[@harrychufan]

Only contributions, not gains.

[@Moriningland]

I like the idea of having the money if I need it

[@radhames174]

There are many tax savings for the traditional because it’s pre tax and if you could lower taxable bracket with some tax planning the traditional is more beneficial.

[@signalfire15]

The vast majority of clients are in a lower tax bracket at retirement. Signed, a tax preparer.

[@micdeleon]

Lol... vast majority is an interesting term to use to describe the number of clients you've been introduced to

[@signalfire15]

@@micdeleon What is funny and why is it an interesting term to use?

[@jacobmarley2417]

@@signalfire15 theyre a troll

[@montyi8]

So move to lower income job close to retirement?

[@imnotdavidxnsx]

@@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.

[@bigroy38]

52,bachelor for life.Not sorry for skipping BS5.Never been happier.

[@DanielIles]

*Why not both to diversity against taxes* 🤷‍♂️

[@enigmathegrayman2953]

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. There’s more investments to be had other than a 401k and the stock market in fact the other investments you have more control over.

[@perotal]

@@enigmathegrayman2953 nothing prevents you from using the tax return from your traditional contributions for other investments

[@ChicagoTRS]

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.

[@roba168]

Marcus M. I Th ink he means just split it up if he’s already contributing 15% to his Roth why can’t he just cut that down to like 10 and take the other 5 and put in in a traditional 401k

[@uclaxboi]

Losing compound interest if you split

[@COMMANDRofAWESUM]

The correct answer as to which one you should use is “yes” … you should be maxing out your ROTH as well as doing a 401(k) at least up to the amount your employer will match, potentially more.

[@davidr4210]

hypothetically shouldn’t the traditional have more money into it? Since it’s pretax you have more money being invested? So someone putting $500 in a Roth will have less than someone putting $500 into a traditional?

[@ReallyBoredMan]

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.

[@davidr4210]

@@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?

[@ReallyBoredMan]

@@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.

[@ElvenClaw]

Psychologically Roth is always better like Dave said. You only put x% into it whether it’s Roth or traditional 401k, therefore Roth wins. If you put x% plus the differences in taxes that you don’t pay in a traditional then they’ll work out about the same in the end.

[@Matt-xq6ow]

Does the answer also depend on how much you make too?

[@djpuplex]

Do both. Traditional for employer match and to lower tax bracket if possible. Invest the difference in a Roth try to max though it if possible.

[@daheni8857]

I get the match of 8% in traditional and then 15% in Roth 401K to get up to the max for the year

[@djpuplex]

@@daheni8857 lucky you I get 3% match that vests like a disabled snail 2 to 20% seven years till match is fully vested. I'd end up owing if I left now with the economy the way it is.

[@graywilliams_77.]

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]

how do I get in touch with the adviser i really need a help..

[@joshuabradley6727]

@@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.

[@Nathanallenpinard]

The question is, what will income taxes be in 30 years?

[@jacobmarley2417]

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

[@ChrisInvests]

Mandatory withdrawals/distributions are a major drawback of a traditional retirement account that many people aren't aware of 🤨

[@jasonsanders8623]

Kevin Hunt Roth IRAs DO NOT require mandatory distributions until death

[@KH-vv5dq]

@@jasonsanders8623 The ROTH 401K IS subject to minimum distributions (according to investopedia and my own retirement plan administrator). Seems like a simple fix to roll it over once you leave employment, but how many people forget that. EDIT: Dug deeper into it on my employers plan, and they state that the rollover has to be completed before the first minimum distribution, so if you miss that deadline you lose that benefit.

[@KH-vv5dq]

Only Roth IRAs, not ROTH 401ks

[@jasonsanders8623]

Kevin Hunt this is a direct quote from investopedia: You must begin withdrawing money from a traditional 401(k) at age 70 1/2. A Roth account does not have that requirement.

[@KH-vv5dq]

@@jasonsanders8623 A ROTH 401K is NOT a ROTH IRA. Look up the ROTH 401k on investopedia. In the section Roth 401(k) vs. Traditional 401(k), there is a highlighted note stating this difference. So yes, there is an extra step to avoid the RMDs, and that is to convert the ROTH 401(k) to a ROTH IRA once you leave your employment. That will be an expensive mistake if you forget or miss the deadline.

[@JB-kx9bx]

Dave oversimplifies here. If you contribute $10,000 tax deferred vs $7800 post tax you’ll gain a lot more from compound interest over the years offsetting any taxes you’ll pay. Plus you’re not cashing it all out at retirement that compound interest will continue to compound.

[@emorygarrett451]

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 wouldn’t have taken any of your money out for taxes and you would have earned interest on that money for 30 years.

[@kebas239]

I don't understand this...wouldn't you end up with 1.3M in both cases since the actual contributions to the Roth would be lower due to after tax contributions?

[@TheDustinh2]

The idea of holding your own tax fate is also a component of the Roth 401k that I like a lot. The government's thirst for insisting on social programs that are not going to fund themselves is something I personally cannot ignore when deciding my tax fate.

[@smokenojoke8182]

People keep saying your going to have a lower tax rate when you retire but if tax rates are constantly going up am I really getting a good deal?

[@CasiodorusRex]

Relax, social security is a political game. It's not going anywhere. We're sending billions to Ukraine right now.

[@robertc801]

@@smokenojoke8182I think the argument is not that the tax rate will be lower, it’s that the amount you pay in taxes will be lower and in a lower bracket. For example if your income is $200K in your working years, you’re in that bracket, prior to any adjustments, or whatnot. In retirement, you’re taxed on what you withdraw, in essence what your spending is. So if you spend way less in retirement, you’ll be in a lower bracket.

[@superheavydeathmetal]

0:53 Hold up! What was that about not maxing out your contribution until paying off your house?

[@strongblackliquor]

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.

[@strongblackliquor]

@C B you'll still have to pay federal taxes

[@strongblackliquor]

@C B 😎👍🏾

[@AverageJoeInvestor]

IF you have no tax liability NOW then the Roth seems like a no brained though doesn’t it...

[@joeb1522]

@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.

[@joeb1522]

@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.

[@artharrison294]

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. Don’t 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 government’s 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 doesn’t exempt us. Double tax exempt muni bonds may assist, but you’re not getting high returns on those accounts either. If you happen to end up being a high rate tax payer in retirement, I guess it’s good to have such an . It’s nice to see large balances on your accounts, but just keep in mind we don’t get to keep it all.

[@billy2069]

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.

[@kishorkharbas557]

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.

[@jgg204]

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

[@joeb1522]

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.

[@darylallen2485]

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.

[@darylallen2485]

@@jeevang7853 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?

[@ChrisCox-wv7oo]

@@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.

[@TheBatman777]

You’re missing a big piece of the traditional. The lower tax up front means you can invest more UP FRONT. Therefore, the final number will not be equal. The traditional would have a way higher balance at retirement, despite having to pay taxes later.

[@Jergs18]

Plus he missed traditional match for some which will inflate that number even more.

[@TheBatman777]

@@Jergs18 yep

[@dw1419]

Bruh you can contribute to a Roth 401(k) and still get the employer match. It’s just that the employer match goes to pretax dollars. That’s what I do.

[@DaveM-FFB]

Flawed logic. Ramsey ignores the fact that most retirees have a lower effective tax rate than the rate in their prime earning years. Also it's cheaper to delay paying an expense for 30 years, due to inflation. Traditional 401K makes sense for most folks.

[@GI-nh3zw]

Just trying to understand more - can you do a quick math and illustrate your point? If this caller has 1.7million at 63, and his is taking his 401k distribution(and let’s assume social security income as well), what would his lower effective tax rate that you mentioned be?

[@jeuryperez7468]

I’m also curious he doesn’t take into account the fact that 401k is untaxed to you’d be putting more into the 401k than into Roth meaning it would compound more money, I’m just now getting into this so please do correct me

[@DaveM-FFB]

@@jeuryperez7468 Yes. He would have more money to invest upfront with the 401K, and those additional pretax investments would compound over time, vs less money to invest into a Roth, because you pay tax first.

[@bman4939]

@@DaveM-FFB I never considered the inflation angle. Interesting...And while technically true you have more money invested in Traditional than Roth when you start with, "I have $1 here I'm going to save", I think Dave in the end alludes to something more practical and powerful. Most people say, "I put away $500" whether its Roth or Trad. But they aren't the same $500. To put $500 of Roth away, it forces you to save more because of the tax you have to pay. You actually are putting more principle away with $500 of Roth vs $500 Trad.

[@DaveM-FFB]

@@bman4939 It's a clearer comparison if you consider Federal withholding. Two guys make $48K. One takes home $40K after tax. The other claims 401K deductions and takes home $44K after tax. Who gets to invest more towards retirement?

[@KPad87]

I have best of both worlds . Plus a brokerage .

[@TheRealDealNeal]

You should always do 401k up to match, then max out Roth. Correct?

[@alrocky]

You mean Roth IRA or Roth 401(k)?

[@TheRealDealNeal]

@@alrocky roth ira

[@alrocky]

@@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).

[@jeremiahchacha9668]

@@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!

[@Feeltheh8]

@@jeremiahchacha9668 Ask your HR, mine told me they do Roth match as well.

[@aether4505]

The other thing I would think about is state income tax. With a traditional, if you live in a state with high income tax, you can make pre-tax contributions, then when you withdraw, you may live in a state with lower income tax. Some states don't tax on retirement income at all. The converse is also true, if you live in FL, and plan to retire in CA, definitely go with a Roth. That income may also be taxed at a lower bracket when you withdraw then if you pay taxes on it upfront. Also, after-tax money is worth more than pre-tax money. Your Roth has higher value money because you've put higher value money in, effectively all a Roth allows you to do is make higher value contributions because they have the same contribution limits. So if I put in 15% and I make $100k annual gross, I'd put $15k in a traditional, or $11k in a Roth (depending on state). If I wanted to put $15k in a Roth, that $4k difference comes out of my net income.

[@kabascoolr]

This is absolutely terrible (and somewhat reckless advice) lol. I love Dave Ramsey but this is my issue with him. He's willing to selectively leave out any information that stand in the way of whatever worldview he has cooked for himself. 1) 12% interest??? 2) Not accounting for taxes removed in IRA, which affects final amount after compounding.... 3) The vast majority of people are in a lower tax bracket after retirement than during their working lives, so they would pay less in taxes on the 401K than they did on the IRA!!

[@tortoisehead30]

Well said.

[@AtlantiansGaming]

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.

[@SSModi852]

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.

[@kylelaw7210]

Assuming you are in a 30% tax bracket, you would have to put in $715 pre tax 401k for it to be "the same" as $500 roth/after tax. If your tax rate is the same at retirement as when you are working, you end up with the same amont of after tax money either way. (Assuming you put the $715 pre tax into your 401k each month and not $500 pre tax) In my opinion the advantage to roth is you know how much you have and don't have to worry about what the tax rate might be in 30 or 40 years. Another advantage is you could take it out all at once at retirement age and not get hit with a big tax bill.

[@alrocky]

$500 / 0.70 = *$714.29* of pretax money: *$714.20* traditional is "the same" as $500 Roth.

[@kylelaw7210]

@@alrocky thanks. Fixed it...

[@ventilator2999]

Roth’s are great. I wish they had a higher annual contribution limit, though

[@ChrisCox-wv7oo]

IRA and 401k have contribution limits. Roth vs Traditional have different tax implications (among other things).

[@johngill2853]

Roth's are great only if they cause you to pay less tax in the future. I hope you have something to take advantage of the lower tax brackets and your standard deduction in retirement. Because with only a Roth you just made a free donation to the public debt if you have no other income besides that

[@elbry4]

@@johngill2853 ROTHS are great because they are going in post tax and withdrawals as well as earnings are tax free.

[@johngill2853]

@@elbry4 traditional and Roths are exactly the same if you're in the same tax bracket when you retired as you were working. The thing is most people are in a lower tax bracket when they retire. This doesn't mean you are most people. A combination is best for many people

[@Punch1st]

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.

[@imdoc7872]

I asked my accountant about moving my 401k to a roth 401k and he recommended not to do it. I would pay too much in taxes.

[@Silidons91]

so you're just delaying the inevitable? the taxes that you're going to owe is just going to increase over time with your traditional.

[@imdoc7872]

@@Silidons91 you will pay less in the future if you consider that you will not make as much by retirement age

[@imdoc7872]

@@Silidons91 it only applies for those who are at the top of the tax bracket. I think if you pay more than 31% per year.

[@Silidons91]

@@imdoc7872 I have a pension, if I make it to age 57 I'll be making more than I am right now per year in retirement.

[@chime-girl]

Ok. What if you go with a 401K now, in order to get the tax benefit of lower income bracket and then convert to a Roth 401K when you're close to retirement? Pay the taxes before you head into retirement so that it doesn't effect Social Security or counted as income during retirement? Hope that makes sense.

[@motoryzen]

The difference in the tax deduction benefit versus the UNtaxable growth is still WORLD'S apart different. Roth is still the wiser choice

[@alrocky]

@@motoryzen There is no "tax deduction" for contributing to traditional 401(k).

[@motoryzen]

@@alrocky shoe me proof you're correct. I'm all eyes.

[@alrocky]

@@motoryzen You made the claim about tax deduction for 401(k) so it's incumbent upon you to show proof. What *Line* on *Form 1040* do you claim tax deduction for contributing to *traditional 401(k)?*

[@leesanders2901]

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!

[@JB-nw1ej]

So don’t take the free money Dave? Hmmmmm this doesn’t make sense.

[@_MoneyMike_]

ROTH 401k you’re getting the free match …he’s not talking about a ROTH IRA

[@sampson7941]

This is a hot topic. Ask someone who is going through it. Really, go ask a retired person. I talked to a guy that had $20,000 per year taken out of his check for taxes minus tax return. Now that he is retired and on social security and a small pension he pays $700 per year even with taking the mandatory withdrawal from traditional 401k. Id say 700 is less than 20,000. But it all depends on your income level in retirement. If you have a bunch of income from some business or rental properties in retirement you will be in a high tax bracket and also not really retired .

[@mstelzman]

Can’t 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 doesn’t 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 won’t get that complicated.