Should you choose a Roth IRA or a Traditional IRA? We’re bringing you the geeky stats to help you choose!
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#retirement #retirementplanning #dohstr8
Intro/Feet Talk 0:00-1:20
Overview of each account type 1:21-4:34
Taking geekiness up a notch 4:34-8:30
A dad joke…. 8:30-9:25
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When it comes to retirement planning, one of the most important decisions you can make is whether to open a Roth IRA or a Traditional IRA. Both are retirement accounts, but they have different tax implications and benefits. It is important to understand the differences between the two in order to make the best decision for your retirement savings.
A Roth IRA is funded with after-tax money, meaning you pay taxes on your contributions before they are deposited into the account. The money in the account grows tax-free, and you don’t have to pay taxes on the withdrawals when you retire. This is a great benefit if you anticipate being in a higher tax bracket when you retire.
A Traditional IRA is funded with pre-tax money, meaning you don’t pay taxes on the money until you withdraw it in retirement. This can be beneficial if you anticipate being in a lower tax bracket when you retire.
The main difference between a Roth IRA and a Traditional IRA is the timing of the tax benefits. With a Roth IRA, you pay taxes on the money upfront and reap the benefits of tax-free growth and withdrawals in retirement. With a Traditional IRA, you don’t pay taxes on the money upfront, but you will have to pay taxes on the withdrawals in retirement.
When deciding which type of IRA is right for you, consider your current and future tax situation. If you anticipate being in a higher tax bracket in retirement, then a Roth IRA may be the better option. If you anticipate being in a lower tax bracket in retirement, then a Traditional IRA may be the better option.
It is also important to consider the contribution limits for each type of IRA. For 2021, the contribution limit for a Roth IRA is $6,000 ($7,000 if you are age 50 or older). The contribution limit for a Traditional IRA is the same.
Finally, it is important to consider the other benefits of each type of IRA. Both Roth and Traditional IRAs offer tax-deferred growth, meaning your money can grow without being taxed until you withdraw it. Traditional IRAs also offer the potential for tax deductions on your contributions, depending on your income level and other factors.
In summary, when deciding between a Roth IRA and a Traditional IRA, it is important to consider your current and future tax situation, the contribution limits, and the other benefits of each type of account. By taking the time to understand the differences between the two, you can make the best decision for your retirement savings.
I really appreciate all the great content you guys put out! I watch almost all your stuff.
I do think the chart in this video is making the wrong comparison though.
It is comparing the tax savings on contributions based on marginal tax rate vs the tax savings of future distributions at marginal tax rate. Issue is that future distributions tax savings should be based on Effective tax rate.
My guess is that not many people if any will have a future effective tax rate that is higher than their marginal tax rate today.
How do account for future tax brackets adjusting to higher levels. Deficit is 31 Trillion today. Where is it in 20 years and do the taxes go up accordingly?
Another consideration is that if you’re a couple when one of you dies the remaining person will for sure be in a higher tax bracket. This is my situation so I’m doing Roth conversions now even though my tax bracket will be the same in retirement.
No no no not that joke man
So will the Trump tax rates remain at the time of your retirement? They're set to expire in a few years and go back up to what they were before Trump took office. I'm pessimistic and think that at minimum they will go up back to what they were and may go higher. They said earlier this week that they will need to borrow an additional 1.5 trillion dollars for the next 6 months.
Yea so true you have to watch your income. Also IRS considers stocks sold or dividends count as income so watch that too. I found that out when I sold stock that put me in a different tax bracket also.
Dustin, shouldn't your chart include the return of the higher tax rates in 2026?
What if having tax free withdrawals (Roth) in retirement keeps me from having to pay tax on social security? If all (100%) of my retirement is Roth, isn't that a tax FREE income in retirement?
Dustin you should have taken that little girls Money so you could afford thread to patch that hole in your socks.
Interested in what you have to say. I always assumed if you qualified for Roth you should use it.
Q: I have 401K. Can I still contribute to Roth IRA if I make less than income limits
Ok, that was fantastic. "Put it on my bill" SLOL
Go Roth or go home!
Is it a good idea to split 50/50? Half goes to traditional IRA and the other half goes to ROTH.
Thank you Dustin and Eric good info!!
Would this chart apply the same way for Roth IRA vs traditional 401k (trying to keep taxes down)?
You two are the Jeff and Jessie of the finance world. Lol
I can't wait to tell my daughter that joke!
The chart was good. It's a big part of the answer for many people on the Roth vs traditional discussion
Are the limits for deductible IRA after deductions?
Was it my imagination, or did Dustin have a hole in his sock. LOL