Introduction to Roth IRA’s. Created by Sal Khan.
Watch the next lesson:
Missed the previous lesson? Watch here:
Finance and capital markets on Khan Academy: The government apparently wants us to save for retirement (not always obvious because it also wants us to spend as much as possible to pump the economy going into the next election cycle). To encourage this, it has created some ways to save that avoid or defer taxes: IRAs and 401ks.
About Khan Academy: Khan Academy offers practice exercises, instructional videos, and a personalized learning dashboard that empower learners to study at their own pace in and outside of the classroom. We tackle math, science, computer programming, history, art history, economics, and more. Our math missions guide learners from kindergarten to calculus using state-of-the-art, adaptive technology that identifies strengths and learning gaps. We’ve also partnered with institutions like NASA, The Museum of Modern Art, The California Academy of Sciences, and MIT to offer specialized content.
For free. For everyone. Forever. #YouCanLearnAnything
Subscribe to Khan Academy’s Finance and Capital Markets channel:
Subscribe to Khan Academy: …(read more)
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
you missed some key points. you have personal deductions on your traditional tax that was not factored in. You also didn't keep the accounts equal in growth. you went from 3400 to 7800 when it should have gone up to 6800. then you would have only gone up to 13,600 that you could take without taxes. And if you were still in that 32% tax rate, those amounts would be equal. Except for like I said, you have personal deductions and then you pay 10 and 12 % before you get close to the 32%. So again, you missed some key points.
Do some of both.
Thank you for making this video! However there are errors that need to be fixed. My understanding is that the principal should be the same in both cases to start with even if there's tax upfront for Roth IRA, which should be considered separately from the principle. Please correct me if I am wrong.
Is it me, or does he always drag the explanation like 5-6 minutes of unnecessary bla bla bla. Straight to the point. I love his knowledge, don’t get me wrong, but he looks like the professor who knows the subject but the class gets bored when he over explains it.
Ideally people would have both to level out the playing field. The only real advantage 401ks and traditional IRAs have is it's a great way to lower your taxable income and you have to pray taxes will be lower by the time you retire.
I’m 7 years late. But now I understand. Thank you for providing such information!
Great video, I am very interested opening an Roth IRA, i need help because I really do not know what to do next.
Is it safe to invest money in IUL.
Why would you not place $5000 in the Roth account? It is already taxed. For his illustration purposes it would have been better to show both of them growing and starting from $5000.
Roth seems better intuitively, maybe because it feels good to handle costs upfront, but considering inflation will lower the value of money over time it also makes sense to defer payments to the future, but then taking into account that all of the investment gains will be taxed makes it so that some math is involved. I suspect it's a wash that could go either way.
Hahahaha! I thought Roth was short for Rothschild…
could you please change and remake the video.. its tricky and misleading . thank you 🙂
Usually, one's net result with the logic in this video will be of similar earnings between a traditional and a Roth I.R.A. (despite the math errors herein). What is not often enough mentioned is, the Roth will much outweigh the traditional if the initial principal between the two accounts is the same (rather than the Roth's being relatively reduced by taxes).
Wish I could find a video with someone explaining this without putting me to sleep.
Wow, math mistake screws everything up, also logical mistake screws it even more.
Let's say we doubled the money, 10k vs 6.8k.
You need to get 3400, not to withdraw 3400.
So in traditional you have to withdraw
5862.07 this yields you 3400 after .32+.10
Leaving 4137.93 in account to earn interest, while in Roth you get 3400, leaving 3400 earning interest.
Roth IRA contributions are not tax-deductible. However, eligible distributions are tax-free. This means, you contribute to a Roth IRA with after-tax dollars, but as the account grows, you do not face any taxes on capital gains, and when you retire, you can withdraw from the account without incurring any income taxes on your withdrawals.
Why the hell would you feel the need to repeat every other word 3 times just to write it in a board..
Thank You! Excellent video.
Really should take this down and fix it.
6800
I guess if you retire in a tax free state it changes things ?
It is very likely that taxes will go up in the future, so go with a Roth.
Questions if the market is bad
1) If you contributed lets say 2000$, what happens when your balance at the end of the year is 1800$, less than your contributions? Would you only be able to withdraw 1800$ or the full 2000$ that you contributed?
2) Also with the same scenario, will the earnings next year be based on my total contributions of 2000$ or the current balance in the roth IRA of 1800$?
he clearly did the math wrong. if he did it right. after retirement with the ROTH IRA you would have 13,600 not 15,600. that makes the traditional IRA better after retirement.
how investment with IRAs ,I don't understand ? can I put the money and that is ? or need invest
so everytime I put let's say $100 into my Roth IRA out of my paycheck I have to pay tax on that $100 or since those earnings are already subject to income tax I do not need to pay let's say 32% on that $100 post income tax money I want in my roth?
The numbers don't relate!