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In this video, I explain why the Roth IRA is overrated in 2023. A Roth IRA is an individual retirement account.
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Chapters
0:00 Intro
1:04 What is a Roth IRA?
2:15 Human side of things
4:15 Typical Financial Issues
6:56 My Thoughts
7:19 Outro
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LEARN MORE ABOUT: IRA Accounts
INVESTING IN A GOLD IRA: Gold IRA Account
INVESTING IN A SILVER IRA: Silver IRA Account
REVEALED: Best Gold Backed IRA
The Roth IRA has been touted as the gold standard of retirement savings, but is it really worth all the hype? The answer is no, and here’s why.
Firstly, the Roth IRA has contribution limits. For 2021, those under the age of 50 can only contribute up to $6,000 a year, and those who are 50 and older can contribute up to $7,000. This may seem like a lot, but it pales in comparison to other retirement saving options like 401(k)s, which have contribution limits of up to $19,500.
Secondly, the Roth IRA has income limits. If you make too much money, you cannot contribute to a Roth IRA. For 2021, single filers with modified adjusted gross incomes (MAGI) of more than $140,000 and married couples filing jointly with MAGIs of more than $208,000 cannot contribute to a Roth IRA. This limits the accessibility of the Roth IRA to individuals who are already in a good financial position.
Thirdly, while the Roth IRA allows for tax-free withdrawals in retirement, this is only true if you have held the account for at least five years and are over the age of 59 ½. If you withdraw money before then, you will be hit with a 10% penalty in addition to the taxes owed on the withdrawn amount. Additionally, withdrawals from a Roth IRA count as income, which means they could push retirees into a higher tax bracket and incur more taxes.
Finally, the Roth IRA may not be the best option for everyone. Depending on your specific financial situation, goals, and retirement timeline, other retirement savings options may be more beneficial, such as traditional IRAs or 401(k)s.
In conclusion, while the Roth IRA may seem like the perfect retirement savings option, it has its drawbacks. Its contribution and income limits, strict withdrawal rules, and limited accessibility make it a less attractive option than other retirement savings accounts. It’s important to evaluate all options and consult with a financial advisor before making a decision on where to save for retirement.
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Nice vid Mark valid points! I wouldn’t say overrated but not practical. 23yrs can still contribute even as little as $25-50 mthly. Ur right on housing issue, but I disagree, being a landlord is another beast.
joined the discord finally!
I got my house at 23 and now I got both Roth IRA and 401k
I think you get rid of high interest debt (stuff over 4 or 5 %) and contribute to a roth IRA after those. missing out on early small investments could be loosing out on a lot of compounding growth. 1 dollar at age 20 could be worth $88 at time of retirement where $1 at age 25 -> $44, age 30 ->$23. the later you wait the less potential. Its a balancing act for sure, I do believe contributing something even small is good even to build the habbit.
I still carry my 4% and under student loan debt and don't carry a car loan. I also got my employers to pay for any further education.
I was initially skeptical based on the title but I think that you made some valid points and gave us something to think about.
How can a 23 year old buy a duplex if we’ve established that groceries are expensive and they can’t even invest $6,500 a year?
Great Video!! I think a young person should start saving with any 401K matching and maxing out an HSA before starting a Roth IRA.
There's always opportunity costs involved with decisions like this. Glad you explained the many other expenses / liabilities to consider. Personally I am a fan of the ROTH IRA and contribute to it as much as possible.
I've been looking to open up a Roth IRA account. I'm new to this. How do I get started? Do you recommend any banks to do it with? I know Robinhood is doing it. Are they ok? Sorry if I sound like a complete newbie.
This example is pretty eye-opening. While I do still think the Roth IRA is a powerful investment vehicle for young folks, I don't think it should be the end-all-be-all before bare necessities and life enjoyment. Great video Mark!
I think this video is overly miss leading. Its great to pay off debt and minimize debt but it is important to save money for retirement. Keep in mind with the interest rates and inflation on housing and other areas it may take years for the 23 year old to save up enough money for a down payment on a house(recommend 20%) and they may not have the credit or the income like you mentioned. Any dollar you put into a roth Ira can be taken out with no penalty or tax. What you cannot take out is the growth. So the 23 year old can put money in to have it grow and occasionally take out the principal and apply it to debt if needed. Sooner you can contribute the better as time is your friend for growth. For debt it depends on interest rates. Example, if your car loan has an interest rate of 2% or a home morgage is 3%, c many bank accounts such as capital one pay 4%, you would be better in those cases to pay the required payments due to making more interesting in the bank than what you are paying on the mortgage. Everyones financial situation is different, in the end I recommend reaching out to a financial planner for more guidance.
I've def thought of forgoing roth contributions to save for a downpayment. I like to focus on one financial goal at a time and figured maxing out hsa/roth each year before putting money into housing fund makes me feel the best. what I learned about personal finance is sticking to a plan that makes you feel alright even if it's not the most optimal as long as you can stick to it.
Your points are valid and well made. I think it’s more of a situation that everyone’s situation is different, so priorities should be different for different people, rather than the Roth is overrated. Young people should prioritize investing in themselves and paying down debt that they have outstanding. If they can, they should also be putting enough in their 401k to get the maximum employer match, if there is one. I did Roth conversions during the 2008 financial crisis when stock prices were low and my marginal tax bracket was low because I wasn’t working. It worked out for me.
I think the Roth IRA is sooooo important, however I agree it can be a bit overrated. However, I really think everyone should take advantage it
I have a Roth but I dont max it out
Very good info , I’ve been thinking about starting a Roth ira
Thank you for this info
I like to think of my Roth IRA as a supplement to my retirement. I wasnt contributing to it when I was 23 but even in my 40’s it’s a way to save tax free. I want to meet these kids that took on student Ioan debt to earn $17/hour.
I think that the reasoning behind so many influencers talking so much about Roth IRAs comes because most young people don't understand the power of compound interest growing that retirement portfolio early. To me, those videos are for well-off people that can afford to put some money away but would otherwise spend it all eating out or partying. If you can afford to, the Roth IRA is definitely the best way to contribute to retirement (after matching employer 401k contributions)! Unfortunately, as seen in your example in the video, most people can't even think about retirement because they're just trying to stay afloat with their finances… If a younger person does find themselves in a fortunate enough position to save for retirement though, I love the power of what a Roth IRA can give you tax-wise.
We maxed out both my wife's and my ROTHs in 2021. Then we fell into a lot of debt, so for 2022 and 2023 we have focused on paying that off instead. ROTH is fantastic and flexible and should be used (I'd say even over house savings) but other things can certainly be more important
Roth IRAs are beautiful, there are so many advantages. I think the video is a little misleading. You are criticisizing spending a certain dollar amount into investment, rather than the Roth IRA itself. People should invest what they can afford to as soon as they can afford to. The idea that since you cant do a certain dollar amount into a Roth at 23 you should not do it at all is ludicrous. The 23 year old could also eliminate that entertainment budget completely and invest that. But any amount is better than none. Later, they should have an income focus on their Roth IRA to live off dividends and put a transfer on death on the account so their kids can inherit and it becomes multigenerational snowball family wealth.
Not overrated, real world scenarios are that general taxes will 100% be higher in the future. So a Roth now and paying the tax is the best way to reduce tax risk moving forward amongst alot of other things
I just started a Roth IRA.
I think the max you can contribute is $6,000 not $6500
The Discord link doesn’t seem to be working, @Mark!
Can’t deny the power of the Roth IRA. The tax benefits are incredible
I personally started maxing out my Roth IRA starting at 23 but I’ll be the first to admit, I was born with a silver spoon in my mouth – never had student loan debt, no credit card debt or other forms of debt. Also @ 23, I was making ~1.4-1.5x the median income of a 23 year old so I did have the income to do it