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Our Rich Journey – There are a lot of benefits to investing in IRAs, but Traditional IRAs and Roth IRAs have very distinct and different benefits. In this video, we explore the key distinctions between a Roth IRA and a Traditional IRA. We break down the fundamental differences, contribution limits, tax implications, and withdrawal rules associated with these two popular retirement accounts . . . and we give you our thoughts on which of the two accounts we think is the best to invest in for financial independence! Whether you’re a seasoned investor or just starting out, this video provides valuable insights and strategies to help you make informed choices and take control of your financial future! #rothira #traditionalira #financialindependence #retirementsavings #personalfinance
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Retiring early has been a dream of countless people for years. The idea of being financially independent, able to travel, or just spend your golden years as you please without having to worry about work is something that many of us aspire to. However, achieving this goal is no easy feat. One of the most important financial decisions you will need to make towards achieving financial independence is choosing the best investment account to save for your retirement. In this article, we explore the pros and cons of two popular retirement accounts: the Roth IRA and Traditional IRA, and which one might be the best investment account for financial independence.
The Traditional IRA
A traditional IRA is an individual retirement account that allows you to contribute pre-tax dollars to an investment account fund. This means that any money you deposit into the account is tax-deductible, saving you money on your taxes in the current year. The funds in the account will grow tax-free until you withdraw them when you retire, where you will pay tax at your regular rate. Traditional IRAs are a good option for those who expect their income to be lower in retirement and expect to pay lower taxes.
The Pros and Cons of a Traditional IRA
The main advantage of a traditional IRA is the potential tax savings. If you are in a high tax bracket, contributing to a traditional IRA means you will be able to lower your taxable income in the current year and potentially qualify for a lower tax bracket. However, a potential downside of the traditional IRA is that once you reach the age of 72, you will need to take required minimum distributions (RMDs) from your account. This means that you will be required to withdraw a certain amount of money from your account each year, regardless of whether you need the money or not.
The Roth IRA
A Roth IRA is an individual retirement account that involves contributing after-tax dollars to a fund. This means that you pay taxes on any money you contribute in the current year, but any funds invested in the account grow tax-free, and you won’t pay tax on the money you withdraw after age 59.5. A Roth IRA is a good option for those who expect their income to be higher in retirement than it is now, and therefore anticipate paying higher taxes in the future.
The Pros and Cons of a Roth IRA
The main advantage of a Roth IRA is that you won’t pay taxes on the money you withdraw in retirement, making it a tax-free investment account. Another advantage of a Roth IRA is that there is no requirement to take minimum distributions at any age. This means that if you don’t need the money from your account, you can keep it invested, potentially maximizing the tax-free growth. The disadvantage of a Roth IRA is that you won’t get a tax break in the current year as you will be contributing after-tax dollars to the account.
Which Is Best for Financial Independence?
The decision to choose between a Roth and Traditional IRA for financial independence depends on a variety of factors, including your personal tax situation, lifestyle, and financial goals. Both Roth and traditional IRAs offer tax-advantaged growth, but they require different tax strategies. You should consider your current tax bracket (including federal and state income tax rates), anticipated tax bracket in retirement, and the potential for future tax legislation that could affect the retirement account landscape.
In conclusion, there’s no definitive answer when it comes down to choosing the best investment account between Roth and Traditional IRAs for financial independence. It will ultimately come down to your personal situation. However, both options offer tax advantages that can help you achieve financial independence by retirement age. It’s advisable to seek advice from a financial advisor to determine the best retirement account for your individual needs.
Please do make a video on the back door Roth. Also can this be done with Thrift Savings Plan (TSP)
Thank you❤
Love the content! You've inspired me!
We're planning on retiring in Spain and wondering if we should stop all contributions to our Roth as we don't know if Spain will recognize the tax already paid on the contributions. Any information or direction would be appreciated.
Can you do a step by step about back door Roth IRA – why and how? Please and thanks!
Hi Guys. Love your channel, always telling my friends to subscribe. I have $5k that I want to invest. I don't need the money anytime soon. What would you suggest as a safe place to park $5k? Thanks in advance for your reply.
Please discuss a backdoor Roth IRA for those who are high income earners and if this is better if you will have a lower income in retirement. Thanks!
My wife and I always look forward to your videos! We have been following you guys for at least 4 years now and have learned so much from your videos and courses. Just want to say thank you and keep sending the videos, especially in these trying times.
Can u do an inspirational video about staying in an index fund it’s basically been hovering at the same amount for almost 3 years despite putting money in. I feel so discouraged.
Pls explain backdoor
I’m 50yo and have 403 plan. We only have target fund & large, sm cap ,i shares index. What is the best plan. Is 80/20 good. Or 90/10
Hi where can I send question in your podcast.
Loved the video as usual. Please yes make a video in the future about the Back Door Roth and include special situations such as the Pro Rata rule. Thank you again
I’d like to learn more about a Backdoor Roth IRA. Thank you for this video.
I’m 62 and have early retired from my government job. I have a Roth and a Traditional and do not contribute anymore . I do receive a pension payment every month and may work part time in the future. Do you think it would be advantageous to switch my Roth to a Traditional? I don’t expect to need the money until I am 70 .
Backdoor Roth would be interesting! Also SEP IRA or self directed?
I was under the impression you CAN'T invest into a Roth IRA and a Traditional IRA at the same time. It's one or the other that's not correct?
Back door Roth + further explanation on how to invest into both Roth and traditional it’s in the same year???
More info on backdoor Roth please
I don't get it, if you intend to retire early doesn't it make more sense to simply invest in traditional (to save on taxes as your income during your working years which is probably going to be higher than your retirement years) & then during the retirement years convert that to roth every year so that you have a roth conversion ladder (i.e. can withdraw every year's contributions after 5 years). Of course it does mean that you would probably need to rely on other sources for the first 5 years, but if you want to retire early, you probably would need more funds than what your 401k and IRA limits are anyways. Plus in a way technically you could even save on state taxes during the traditional to Roth conversion during early retirement age if you chose to retire in a state with lower taxes or in a different country(The different country can add some complexity).
This gives you the benefits of Roth, and helps take advantage of your lower income in your early retirement years.
PS: I'm 30 years old and I intend to retire before I'm 45 and intend to retire in another country(probably India, but your video on Portugal is tempting!). Based on my current research, because currently our max marginal tax rate is soon going to be 32%, I think its a no-brainer to in-general invest more in Traditional and then convert to Roth later. There are other moving parts to this question though like the backdoor and mega back door contributions etc. which I'm still trying to wrap my head around. But in general the tradition seems to make more sense because it seems like there is enough time to convert that into a Roth during the early retirement ages
Please make a video on the backdoor Roth
Excellent video Sister
I'm interested in back door Roth IRA.