On this episode of Jill on Money, Jill Schlesinger and Mark Talercio sit down with Ed Slott to discuss the single greatest account to own! If you’d like to submit a question for Jill on Money, visit:
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LEARN MORE ABOUT: IRA Accounts
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When it comes to managing your money and planning for your financial future, there are numerous accounts and investments to choose from. But if there is one account that stands out above the rest, it is the individual retirement account, or IRA. Specifically, the Roth IRA is often considered the single greatest account to own by financial experts like Jill Schlesinger, the host of the popular podcast “Jill on Money” and a certified financial planner.
The Roth IRA offers a unique combination of benefits that make it a valuable tool for saving and investing for retirement. Unlike traditional IRAs, contributions to a Roth IRA are made with after-tax dollars, meaning that withdrawals in retirement are tax-free. This can be a huge advantage, especially if your tax rate is higher in retirement than it is now.
Another key benefit of the Roth IRA is its flexibility. Unlike a 401(k) or traditional IRA, there are no required minimum distributions (RMDs) with a Roth IRA. This means that you can let your money continue to grow tax-free for as long as you like, without being forced to take withdrawals at a certain age. This can be particularly useful if you plan to work well into your retirement years or if you want to leave a legacy for your heirs.
In addition to these benefits, the Roth IRA also offers a wide range of investment options, allowing you to choose the investments that best suit your risk tolerance and financial goals. Whether you prefer to invest in individual stocks, mutual funds, or exchange-traded funds (ETFs), a Roth IRA can accommodate your preferred investment strategy.
One of the reasons why Jill Schlesinger and other financial experts tout the Roth IRA as the single greatest account to own is its long-term growth potential. Because contributions are made with after-tax dollars, the money in a Roth IRA can compound over time without being eroded by taxes. And since withdrawals are tax-free, you can enjoy the full benefits of your investment gains without having to worry about the tax implications.
If you are eligible to contribute to a Roth IRA, it is important to take advantage of this valuable account as soon as possible. Even small contributions can add up over time, thanks to the power of compounding interest. By investing in a Roth IRA and letting your money grow tax-free, you can set yourself up for a comfortable and secure retirement.
In conclusion, the Roth IRA is often considered the single greatest account to own for its tax advantages, flexibility, long-term growth potential, and wide range of investment options. If you are looking to build wealth and secure your financial future, consider opening a Roth IRA and maximizing your contributions every year. Your future self will thank you for taking advantage of this powerful retirement savings vehicle.
I'm betting on RMDs to be 80 yrs old in 20 yrs. That way, my traditional IRA will be taxed free as part of my estate.
So your Ira doubles in value over 10-15 years and he objects to paying 12% in taxes?
One swipe of the pen by congress and it won’t be tax free
Ed says, "Oh, that's a problem," when Jill provides an example of a 50-year old with a $2M IRA and it grows to $4M at Age 75. Sorry, but with that kind of money, taxes are not going to keep me up at night.
Loved the GR reference
Homeboy forgets the fact that it’s extremely rare for an employer to match roth contributions in employer plan (where majority of americans are saving for retirement) im a fan of roth my also missing out on that employer march for 10-30 years at an employer is something to consider….
Don't forget the Roth Ira 5-year rule if you are older
49 y/o with 1.5 M in an IRA and 400k in a Roth IRA. Is it worth doing Roth IRA conversions if I currently live in the people’s republic of California but plan on retiring in Las Vegas where there’s no state income taxes. CA state income tax for me is around 10%. Thanks again for your thoughts
I’m sorry… your argument is that if you are 75 and you have 4M and you have to pay tax on 160k worth of distributions? I feel like so much of Jill’s advice forgets the average life span of people.
Why I dont make Roth contributions (for now):
1) married filing sep for income based student loan repayment reasons
2) highest state and local tax bracket in a very high tax jurisdiction (it's not the high taxes that bother me, it's how poorly/ineffectively it's spent)
3) optionality to convert to Roth at advantaged times/in advantaged jurisdictions
4) already have plenty of Roth funds from when 1 & 2 didn't apply
5) will probably oversave/overinvest/underspend to such a degree that I won't ever be concerned with my tax bill; I expect I'll be more concerned with figuring out dinner reservations.
Roths are great but you still will pay your share of taxes up front on payroll funds. Personally I have both, a traditional 401k and a Roth Ira.
What about the income max? A lot of us can’t even touch the Roth. Plus it has limits
The all Roth stuff is inaccurate or at least misguided for decent sized groups of Americans . Useful for mass market application, yes. It’s a rare product that can be very good for both lower income/asset people and much much higher income/asset people, albeit for different reasons. But all Roth all the time mantra and the reasons said to support it miss a decent amount of people that can benefit tremendously from smart use of traditional 401k/ira accounts. These are mostly hyper savers debt adverse people on moderate incomes as well as high income people with expected periods of low taxable income. These groups can and should use Roth conversions to reap the tax arbitrage available to them. I get the appeal of all Roth all the time to mass market media outlets but for a show that has a good amount of individualized content and advice, this should be discussed as part of a Roth bent conversation.
I don't share money with the government if I can help it either,.
Joey doesn't share food.
I dont really get the point here, first you max out your roth which has pretty low annual contributions limits, then you can decide to do a pre-tax 401k/IRA ? What am I missing here?
but isnt there a limit on the roth contribution ?
401k or Regular Brokage?
How do you convert to Roth?
Although I agree with the overall premise of not wanting an IRA which just compounds your tax liability, you are missing one key component. You have to run an analysis in which the savings you make due to the tax deferral on the front end is invested alongside in a taxable brokerage account. Although the government is giving you a loan when you make an IRA deduction… that loan is invested compounding your capital. Your entire argument relies on the individual not investing the savings from the tax deduction they get today.
If the govt limits your contribution (ROTH, I-bonds) you know it's legit 😉
i have all of my cash stored in my pillowcase at home; Can you advise me if I should move it to a shoebox or underneath my mattress?
A reason to consider Roth conversions for married tax payers "filing jointly" is that if/when one spouse dies, the surviving spouse will need to change their tax filing status to "single". There is uncertain with regard with the TCJA will sunset in a couple years or not. And as Ed said, Congress writes the Tax Code in pencil.
What is quite certain is that with regard to federal income taxation, some sort of progressive system of rates and brackets is highly likely and the income tax brackets for single tax payers are (for the first five brackets) half would what they are for married taxpayers filing jointly. Plus the standard deduction for single tax payers is half of what it is for married filing jointly taxpayers.
A married couple in Grand Rapids, MI (hey Ed…you should have had Ben Carlson, CFA of Ritholtz Wealth Management buy you lunch for $13.78) with $80,000 of Taxable Income are in the 12% bracket filing jointly today. And while the income would likely decline at the first death, the survivor likely would be in the 22% bracket as a single tax payer — all it would take is Taxable Income for the survivor of $61,750 in 2024.
Here in the middle of Wisconsin, we've been doing Roth conversions for the past four years but will increase the dollar amount this year and next — happily crossing the IRMAA line that will double the Part B premium (MAGI of up to $322,00). The IRMAA "penalty" for Part B is about $2100. Like Jill, I too was born on third base. Paying a couple grand for a couple years to convert a couple hundred grand to Roth is a very reasonable price to pay now.
Our goal is to have about 60-65% of our IRAs be Roth and the remaining 35-40% to be Traditional. Among the reasons to have some Traditional IRA money are because we'll spend the RMDs on the lower Traditional IRAs and should one or both of us need assisted living, those medical expenses will likely still be deductible and if everything in Roth, that potential large deduction would be worthless.
Ed attributing the entire quote from Einstein was excellent: "Compound interest is the eighth wonder of the world. He who understands it, earns it…he he does't…pays it."
There have been proposals to eliminate or partially eliminate the income tax with a consumption/value added tax.
What they are not talking about is that there is always a chance the government changes the rules about the roth or any account. They change the rules for certain accounts all the time. If we continue to get deeper in debt anything is on the table
MAKE SURE you leave a good pre tax balance so you can withdraw and fill up low brackets. Married couple can withdraw $125k at 12%. Makes no sense to convert and pay 35%… if you’re working in NY, doing Roth and then retire in FL, you paid NY tax for no reason. Also add in QCD. There is no ALWAYS, you need to plan…
There are a lot of apples-to-oranges framing devices being used, and many of the claims (like "lower tax bracket in retirement never happens") are demonstrably inaccurate. The broad theme that people don't understand that tax-deferred exposes you to future income tax also seems to be detached from reality: if anything, the opposite fallacy (favoring Roth by calculating total nominal tax expenditures rather than calculating how much you'll have available to spend at the end) seems considerably more common in my experience.
When he said "most people who take RMDs take it because they had to", I giggled, and also had to resist the urge to bang my head into the desk. Yep, that's what RMD stands for!
Roth accounts are extremely useful vehicles, and I do think tons of people should use them, but this episode does not make a good argument. It is deceptive and/or focused on a narrower audience than it presents to be.
The biggest problem with our clients? They have too much money!
Mint.