Are Roth Assets the Apex Predator of Your Wealth Building?
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Are Roth Assets the Apex Predator of Your Wealth Building?
When it comes to building wealth, there are numerous investment vehicles and strategies available to individuals. However, one option that is often hailed as the apex predator of wealth building is the use of Roth assets. A Roth asset refers to any investment or retirement account that is funded with after-tax dollars, with the potential for tax-free growth and withdrawals.
So, what makes Roth assets stand out from the rest? Let’s explore some of the reasons why they are considered the ultimate wealth-building tool.
Tax-Free Growth and Withdrawals
One of the key advantages of Roth assets is the potential for tax-free growth. Unlike traditional retirement accounts, such as a 401(k) or IRA, where contributions are made with pre-tax dollars and withdrawals are taxed as ordinary income, Roth assets provide a different scenario. Any growth within a Roth asset is tax-free, and qualified withdrawals made during retirement are also tax-free.
This tax-free growth can be a significant advantage, especially in a long-term investment horizon. Over time, eliminating the burden of continued tax deductions on growth can have a substantial impact on the overall value of the investment.
Flexibility and Accessibility
Roth assets offer investors a high degree of flexibility and accessibility. Unlike traditional accounts, there are no required minimum distributions (RMDs) during retirement. This means that individuals can choose when and how much they want to withdraw from their Roth assets, allowing for greater control over their financial situation in retirement.
Additionally, Roth assets have fewer restrictions on withdrawals before retirement age. While traditional accounts often impose penalties and taxes on early withdrawals, Roth assets allow individuals to access their contributions penalty-free at any time. This can provide a valuable safety net in case of emergencies or unexpected financial needs.
Estate Planning Benefits
Another advantage of Roth assets is the potential role they play in estate planning. Since Roth assets have already been taxed, they can be passed on to beneficiaries tax-free. This can be a significant benefit for those wanting to leave assets to their loved ones in a tax-efficient manner.
By contrast, traditional retirement accounts are subject to income tax when inherited by non-spousal beneficiaries. This can result in a substantial tax burden on the next generation, potentially reducing the overall wealth transferred. Roth assets, therefore, offer an attractive option for those looking to maximize their estate planning strategies.
Contributions Can Continue After Retirement
Unlike traditional retirement accounts that restrict contributions after retirement, Roth assets have no such limitations. As long as an individual has earned income, they can continue to contribute to their Roth accounts regardless of their age. This feature allows individuals to continue growing their wealth even in retirement, providing an additional avenue for financial security.
In conclusion, Roth assets are undoubtedly an apex predator of wealth building. With their potential for tax-free growth and withdrawals, flexibility and accessibility, estate planning advantages, and the ability to continue contributions in retirement, they offer a powerful tool for individuals seeking to build and preserve their wealth.
However, like any investment or retirement strategy, it is crucial to consider one’s individual goals, financial situation, and risk tolerance when deciding whether to utilize Roth assets. Consulting with a financial advisor can help individuals make informed decisions and create a comprehensive financial plan that incorporates the benefits of Roth assets alongside other investment options.
Sadly I make 200k in CA, the highest tax bracket is 41% with federal and state combined. Roth 401k doesn't work for me
Is this a new set or an old show?
Yesterday I told my spouse we should consider switching some of our Roth contribution to 401K.
Today I'm back to accepting there is no wrong answer for my household's situation. It's so far into the weeds I can't handle it.
why is the traditional 401k being taxed at 24% instead of long term cap gains rate?
HSA >>> Roth IRA
“King of the Water Jungle”
This is the content that I’m here for
I get it, you are showing an older episode, but we are in tax year 2023 now. Those Roth limits have increased.. you should have mentioned the limit change from 2022 to 2023 in the beginning.
We love Daniel’s work ❤
My wife and I had a combined $500K in our individual taxable IRAs about 10 years ago. Starting then, we chipped away at that figure by gradually converting that money into Roth IRAs. I hate to imagine what that figure would have amounted to now and ten years from now and the amount of income tax we would have had to pay in RMDs if we hadn't converted.
Should I contribute to a traditional 401k such that my taxable income then allows me to contribute to a roth IRA?
I max out my Roth IRA. That said there is something to be said for traditional tax-deductible investments too. When you deduct your investments, you are avoiding paying your marginal tax rate, but when you take distributions, you pay taxes at your effective tax rates. The difference between those two can lead to significant tax benefits. For Roth contributions, you pay your marginal rate up front for the benefit of paying zero when you take distributions. It’s a great deal, but not as good as deducting now so you can pay a lower effective rate in retirement. Yes, taxes could go up in the future, but I’m willing to bet my effective rate in retirement will still be lower than my current marginal rates.
It makes me sad to think that Americans have this old age retirement mindset. You get to retire at 65 and finally start collecting on all the money you saved and slaved to get. Then you get on a plane to Hawaii holding a cane so you can have margaritas and watch the sun go down. Meanwhile your doctor just left a voicemail to tell you you’ve got colon cancer.
People start looking at ways to retire EARLY. Invest early into real estate so that you can quit your day job and have passive income to see the world early on. Death walks hand in hand with you, it’s not waiting for you to turn 65 so you can enjoy your money.
I am not seeing anyone earning $40K/year saving $8k/year. They need to be staying with their parents rent-free to even start saving something.
Great video!! When you do a MEGA Back Door Roth from 401k after tax can it be rolled into an existing Roth IRA with Vanguard that you have had for years that is NOT a rollover IRA, or should you open a new second Roth IRA just for this?
The after tax was calculated just by applying a flat 24% and 15% to the balances, which is incorrect. You’re only taxed on your withdrawals, and your math completely ignores the standard deductions and lower tax brackets. There is also a significant 0% tax bracket for capital gains that is ignored. At the very least you want some pre tax assets to pull from to fill out the lower tax brackets.
My company has a calculator to determine which is best. They “sell” the pretax by deciding that you will want the same take home pay. Therefore, you actually invest more with the pretax, but in the end, after taxes are paid at withdrawal it evens out. So, there are other things to consider, which make Roth champion.
The advantage of the Roth, is that after age 59 1/2, all of the money (your contributions and its growth) can be withdrawn TAX FREE!!! Roth withdrawals, in retirement, have other advantages over pretax investments:
A) They do not affect your social security payment’s tax status.
B) When you die, WHOEVER inherits your Roth, doesn’t owe taxes on it either.
C) It protects you from future tax increases, whether from the government, or because your retirement income puts you in a higher tax bracket.
D) It protects you from capital gains taxes due to a holding’s turnover percentage.
New follower here! I (28m) have been hitting my employer match at my company's Roth 401k for the past 5 years, and already have about 0.8X my income in it. Should I continue to focus my investments in that? Or open up an additional Roth IRA and max it out by reducing my contributions to my 401k and HSA?
A lot of people assume that all money taken out of the traditional is taxed at the 24% tax rate. It has to go through all of the lower brackets first. Younger folks in the 12% tax bracket is a no brainer for Roth but for older folks in the 22% tax bracket with not a lot of time to grow, they may be better off taking the tax benefit now. I plan on retiring just a year or two earlier, delaying SS and drawing down my 401k for 2 years filling up the 0%, 10% and 12% tax brackets. Unfortunately I don't have a large 401k balance to get rid of, though.
Pre Tax Patty will most-likely NOT take out a lump sum so she won't get hit with a big tax bill
If these lefties keep cheating their way into office. Taxes will most definitely be higher
Oh no, the animal stuff you said is so bad hahahaha.
Orcas are the apex
Lions are not in the "jungle"
Etc, lol!
Old re runs, but we love 'em! Happy 4th, Money Guy Team
you mentioned that you had earlier videos on 'advanced planning strategies for the wealthy' – could you provide a link to that episode? Looking back through the channel history i'm having trouble finding it.
The amount that an employer matches on a Roth 401k is in traditional form correct? So if you do 15% of your check then that amount is Roth but the 4% match will be traditional.
its good to see the "back to basics" episodes again. I feel like it would be good to see more of these to reduce the burden of trying to wade through youtube search algorithms
My wife and I just hit 200k+ in Roth Accounts (401k and IRA), we are both 26 and hoping this will pay off in retirement.
Great show…I love the zeal for the Roth, it is truly such a great tool for accumulation, please younger folks start or increase your investments while young, your older self will truly appreciate it!
Wait… you're in reruns?.. On Youtube?.. Really?