THIS Is The Best Way to Invest for Retirement (Roth 401(k) vs Traditional)
Today, we’re diving into the age-old question of whether to save for retirement using a Roth 401(k) or a Traditional 401(k). I’m here to break down these two options and shed some light on what they mean for your hard-earned money.
Ramsey Investing Hub:
EveryDollar Budget Deal: I love a good deal, when you sign up using this link, I’ll hook you up with a 14-day free trial and $15 off your first year of the premium version of EveryDollar.
George Kamel is a personal finance expert and co-host of The Ramsey Show. Following Ramsey’s proven money plan, George went from negative net worth to a millionaire in under 10 years. His goal is to help people spend less, save more, and avoid money traps so they can live a life with more margin, options and freedom.
This channel will simplify complex money topics, bust money myths with actual facts, and debunk the stupid financial advice you’re seeing in your social media feed. All with a healthy dose of pop culture, humor, and snark.
Ramsey Solutions Privacy Policy: …(read more)
LEARN MORE ABOUT: 401k Plans
REVEALED: Best Investment During Inflation
HOW TO INVEST IN GOLD: Gold IRA Investing
HOW TO INVEST IN SILVER: Silver IRA Investing
Retirement planning is a critical aspect of financial stability that everyone should consider. It’s never too early to start thinking about your retirement savings, and one of the best ways to achieve this is through a retirement account. When it comes to retirement accounts, the two most popular options are the Roth 401(k) and Traditional 401(k). Let’s take a closer look at these two types and determine which is the best way to invest for retirement.
The Roth 401(k) is a retirement account that allows you to contribute funds on an after-tax basis. This means your contributions are made with money you’ve already paid taxes on, ensuring that you won’t owe any taxes when you withdraw the funds during retirement. One primary advantage of the Roth 401(k) is that it offers tax-free growth. Your investments will grow over time, and you won’t owe any taxes on the earnings, allowing your savings to compound efficiently.
Another incredible feature of the Roth 401(k) is the flexibility it offers. Unlike the Traditional 401(k), the Roth version doesn’t have any required minimum distributions (RMDs). With Traditional 401(k) plans, you’re obligated to withdraw a certain amount annually after a specific age, usually around 72. However, with Roth 401(k), you can let your investments continue growing tax-free, allowing you to maintain control over your funds for as long as you desire.
Furthermore, contributing to a Roth 401(k) allows you to diversify your tax liability in retirement. Having a mix of taxable and non-taxable income sources can be advantageous in managing your overall tax situation. By contributing to both a pre-tax Traditional 401(k) and a Roth 401(k), you can have the flexibility to choose how much taxable income you want to withdraw during retirement, giving you more control over your taxes.
On the other hand, the Traditional 401(k) is a retirement account that allows you to make pre-tax contributions. This means the money you contribute to your Traditional 401(k) is deducted from your taxable income, resulting in a lower tax liability in the year of contribution. However, when you withdraw the funds during retirement, you’ll owe taxes on both the contributions and the earnings.
The primary advantage of the Traditional 401(k) is the immediate tax benefit. By contributing pre-tax dollars, you can reduce your taxable income, potentially falling into a lower tax bracket. This can result in substantial savings on your annual tax bill, leaving you with more money to invest or save.
Choosing the best way to invest for retirement ultimately depends on your unique financial situation and goals. If you expect your income to be higher during retirement or anticipate higher tax rates in the future, a Roth 401(k) might be the better choice. However, if you’re currently in a higher tax bracket and want to reduce your taxable income while saving for retirement, a Traditional 401(k) could be the more suitable option.
Ideally, a combination of both Roth and Traditional 401(k) contributions would provide the most comprehensive retirement plan. This allows you to benefit from tax diversification and take advantage of immediate tax savings. However, if you must choose only one, it’s crucial to consider your current and future tax situations and determine which offers the most advantages for your retirement savings.
In conclusion, both the Roth 401(k) and Traditional 401(k) have their respective benefits and should be considered based on individual circumstances. Deciding which retirement account is the best investment for your future requires careful evaluation of your current tax situation, expected retirement income, and personal financial goals. Ultimately, seeking the advice of a financial professional can help you make an informed decision and secure a comfortable retirement.
This is my fifth year after retirement. I’e been following the 4% rule thing I saw on a youTube channel, but this isn’t really how hard I expected things to be. After I cashed out a lump sum, I still have about $760k left, but at this rate, and with how the market is (we were putting money away in an index fund), I’m starting to get really worried.
Now that you are trying to increase your income and prepare for retirement, it’s important to choose stocks that are expected to hold up in inflationary environments. To combat the negative effect of inflation, it’s a good idea to diversify your portfolio across different asset classes, such as stocks, bonds, and real estate. I've been using the services of a verifiable financial advisor Robin Brezik . I started with $140k, with her assistance I've have made more than $700k. You too can do same.
Traditional 401k and IRAs also make social security taxable, which is a big difference
$12,500 you save every year is that for a joint account with your spouse or can it be per person? for a total of $25k…
too many unfunny memes in between, unwatchable
What I love about the Roth 401(k) is it can help you save on taxes in retirement. Not only are withdrawals tax-free at 59 1/2 , it won't impact the taxation of your Social Security benefit and Medicare premiums.This is an important aspect of a Roth account that most people are not aware of.
Since I began working in 2009, I have maxed up my 401(k), ira, and hsa accounts. I am 50 years old. I'll pass the $3 million threshold this month. I have a 100% investment in Vanguard ETFs and several blue chip equities. Avoiding debt and cutting expenses are my two money-saving secrets. I make passive investments with the help of my FA Susan Kay Mack, who manages my portfolio and makes sure I outperform the market.
Since I began working in 2009, I have maxed up my 401(k), ira, and hsa accounts. I am 50 years old. I'll pass the $3 million threshold this month. I have a 100% investment in Vanguard ETFs and several blue chip equities. Avoiding debt and cutting expenses are my two money-saving secrets. I make passive investments with the help of my FA Susan Kay Mack, who manages my portfolio and makes sure I outperform the market.
First dollar you take out of a traditional 401(k) / IRA is typically taxed lower than the marginal tax rate you put it in at.
There have been changes to the laws, and now the employer match can be made as ROTH
Hot dog Is not a sandwich
Not making up to a million before retirement is unfulfilled retirement.!! I’m 50 and my husband 55 we are both retired with over $3 million in net worth and no debts. Currently living smart and frugal with our money. No longer putting blames on FED for our misfortunes. Saving and investing lifestyle in the stock market made it possible for us this early, even till now we earn weekly.!!.
This is my fifth year after retirement. I’ve been following the 4% rule thing, but this isn’t really how hard I expected things to be. I still have about $460k to invest in stocks. Pls how do I take advantage of the market turnaround?
Roth ALL Day, Georgy!!
How tall are you, George?
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 take advantage of compound interest and potentially grow your retirement savings to about $3M over time?
All I needed to hear: “employer benefit packages can be as confusing as the use of decorative pillows” @mygirlfriend
I’d be retiring or working less in 5 years, and considering this financial recession, I’m curious to know best how people split their pay, how much of it goes into savings, spendings or investments, I earn around $250K per year but nothing to show for it yet.
Interesting take and I agreed initially. But based off of your if connected=not a sandwich principle, that would make subs like from subway, not a sandwich. Also makes the workers not sandwich artist.
My growth of 401k is 2.74% in the past year. In this environment does investing under a brokerage with a custodian outperform a 401k? should I seek a pro to grow my funds on brokerage acct or still hold? I have 5 years to retirement. Happy to discuss.
You explained this perfectly
I completely get it now but how do I enroll into Roth 401k? Is it through my employer?
Hey George, big fan of your new channel and solo content. I know this can be complex, but what if the only way to make get below the income threshold to contribute to a Roth IRA is to contribute to a traditional 401k? Would you do traditional up until you get below the Roth IRA income limit, and do the rest in Roth 401k?
Also even more complex, what if you are investing your tax savings from doing traditional 401k into a regular brokerage account? Seems like traditional might come out ahead, depending on your current and retirement tax bracket
I have a question. When you get married, are you only able to contribute to a joint Roth IRA, or are you able to each have your own Roth IRA and contribute to that?
You may have something meaningful to say; however, the video editing here is too crazy and weird. Not everyone shares your adolescent sense of humor.
6:47 Choosing which funds to invest your portfolio in:
Mutual funds are the easiest and safest way to diversify. Your broker/investor platform may also offer their own index fund S&P 500 like Schwab S&P 500, Fidelity Zero Large Cap, and Vanguard S&P 500. Tech-heavy indexes can be great too, like Nasdaq-100 indexes for Shelton and Invesco.
To diversify further at a lower risk, consider lower reward assets like bonds from iShares or Vanguard. These are even more stable and can work well at a 20% share of your portfolio. With a 10% position in cash, that leaves 70% of your portfolio to be held in Equities. Which is still an aggressive portfolio.
George, these videos are great but when we listen on a podcast, it doesn't flow well because of all the memes and makes it very confusing to follow. I recommend you come up with a second format (without the memes) to put on podcasts. Great content, thanks!
George, I have a question. If I’m already investing my full 15 percent into a Roth 401 k. Should I also go ahead and max out a Roth IRA or just save that money in my high yield savings account? I don’t have any major bills to worry about and I’m not looking to buy a house anything soon and I don’t want kids (so no need to save for college).
15% hasn't been enough for decades, it needs to be 25% or higher. In most cases Roth makes the most sense, but not in all. If you're in the 32% tax bracket today you have the decision and need to do the math, Traditional could be better. We invest in a Traditional because we know we're retiring early and when we do we will start with $0 taxable income and using today's tax rates we can withdraw well over $200k a year and with the SD we will pay 22%. That's a significant savings from paying 32% today, it's a no-brainer. When we were under 24% we did Roth, it made sense being in that tax bracket. It's not a one size fits all, unless you're talking to people who earn in the 22% bracket or lower.
It's recommended to save at least 15% of your income in a 401k. You can use online calculators to estimate how much you should save based on your age and income. Saving at least 15% of your income in a 401(k) can help ensure that you have enough money to retire comfortably. By saving this much, you can take advantage of compound interest and potentially grow your retirement savings over time.
Only doing the traditional right now at 4 percent company match. After paying off my debt I’m switching to the Roth .
What are the canadian equivalents?
Secure 2.0 allows employers to make their match Roth (you pay taxes on the matching portion).
@George Kamel, what about those of us whose employers don’t offer 401k at all? Are all IRAs the same or do you need to hunt down the best bank to do it?
while I prefer to do a Roth, my student loan payment is based on how much pre-tax money I make in the year. So the traditional 410k
George, how tall are you?
Don't forget to use an HSA to save for retirement!
With Roth IRA, the money you are contributing has already been taxed. At any time for any reason, you can withdraw your contributions tax-free and penalty-free. Additionally, any earnings on investments can also be withdrawn tax-free and penalty-free, Not sure how much to contribute, I'm still at a crossroads deciding if to liquidate my $338k stock portfolio.
No one knows what tax rates will be decades in the future, but no one in their right mind will say that they're going to be lower than they are now.
Hi George, Please do a video on how to get rid of private mortage insurance. thanks
What if you have inherited ira, can you transfer it to a Roth?