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The UTTER Stupidity of the Traditional IRA: Roth vs Traditional and Tax TIMEBOMBS
retirement planning can be a daunting task, full of complex decisions and confusing terminology. One of the most debated topics in the realm of retirement savings is whether to opt for a Traditional IRA or a Roth IRA. While both options have their merits, this article aims to shed light on the perceived stupidity of the Traditional IRA, especially when considering the lurking tax time bomb that could potentially explode down the road.
To understand the issue at hand, let’s start by briefly explaining the difference between a Traditional IRA and a Roth IRA. A Traditional IRA allows individuals to contribute pre-tax dollars, which are tax-deductible in the year of contribution. Contributions and earnings within the account grow tax-deferred until retirement, at which point withdrawals are taxed at the individual’s ordinary income tax rate.
On the other hand, a Roth IRA is funded with after-tax dollars, meaning contributions are made with money that has already been taxed. While there are no immediate tax benefits upon contribution, the account offers tax-free growth and tax-free withdrawals during retirement, given that certain conditions are met.
On the surface, the Traditional IRA may seem appealing, as it allows individuals to lower their taxable income during their working years. However, this perceived benefit often obscures the potential tax time bomb that awaits down the line.
One crucial factor to consider is the unpredictability of future tax rates. Depending on economic changes, political decisions, and personal financial circumstances, tax rates can vary significantly from the time a contribution is made to the time of withdrawal. By the time retirement rolls around, it is possible that an individual may find themselves in a higher tax bracket than initially anticipated.
This unpredictability has led many financial experts to advocate for the Roth IRA. With a Roth IRA, taxes are paid upfront, ensuring that contributions and earnings are withdrawn tax-free during one’s retirement. This strategy effectively shields individuals from any potential tax rate hikes in the future, offering a more secure and predictable retirement income stream.
Furthermore, the Roth IRA offers more flexibility when it comes to withdrawals. Unlike the Traditional IRA, there are no mandatory minimum distributions (RMDs) with a Roth IRA. This means that individuals can maintain their investments for as long as they wish, allowing their money to grow tax-free for the duration of their retirement.
Another advantage of the Roth IRA is its potential to reduce or eliminate taxes on Social Security benefits. Traditional IRA distributions count as taxable income, which can push an individual’s income level beyond the threshold for taxation on Social Security benefits. With a Roth IRA, the tax-free withdrawals do not affect the taxability of Social Security benefits, potentially resulting in significant savings.
In conclusion, while the Traditional IRA may appear enticing with its immediate tax benefits, it carries the risk of a tax time bomb detonating during retirement due to unforeseen changes in tax rates. The Roth IRA, on the other hand, provides peace of mind, tax-free growth, and greater flexibility throughout retirement while shielding individuals from future tax rate uncertainties. When making decisions regarding retirement savings, it is essential to consider the long-term implications, and choosing the Roth IRA could be a prudent choice for avoiding unnecessary tax time bombs.
I max my Trad 401k, HSA, and Roth IRA. And leftover goes into brokerage acc and HYSA. All in TTCF btw
I still do not understand why the government limits what you can save yourself for your own retirement. They already force you to pay SS I do not understand why?
If I have 25k saved up can I use that to open a Roth IRA? And the next year contribute 6k like normal?
When you start pulling it out is when the problem arises, not when you put it in but when you pull it out. – Strong Man
since you can contribute only 6k to an ira, would you get penalized if you have contributed 6k to multiple iras? personally, i would have no problem with working a near min wage job, and placing all of my earnings into a couple of roth accounts.
Finally some decent fucking content
Is doing a traditional IRA better than doing no IRA at all?
Have you asked Kevin to setup interview between you and Jeremy? Maybe Jeremy already knows about you and Kevin being friends now since they’re in the loop with YouTube, so if Kevin asked him he might be more open to it
I see that guy on echoes really had an impact on you lol either way, smart move and great video for you Americans.
My roommate maxed his roth recently but is 100% VOO. I told him I didn't realize he was in bed with Mike Stathis. Better than ttcf I guess lol
A guy without shirt giving education.. this is going to be eccentric..
Does MeetKevin know how to go in through the back door?
You also need to mention that 401k company match goes into traditional ira not roth ira
Kinda pointless video tbh..roth ira is 6000 maximum per year. Most of us max that out easily then still invest much more in traditional accounts…this video should've been about "max out roth first, then max out 401k etc."……you made it seem like you should only do one or the other
Let’s not talk about the hunter Brandon iCloud leak
Damn my country does have a ROTH IRA type of account but I'm not just too confident about locking up money late 50's.
Hahahahaa
Can’t you roll over your traditional into Roth IRA?
Theil bought bitcoin
I honestly think they are going to find a way to go back and tax Roth IRAs in the future though.
Roth Conversion ladder. The brokerages don’t like the term “back door”
That was priceless. Lmao
Really great information! I enjoy the mix of educational and degenerate gossip on your channel.
You should do a video in your garage with your normal car parked in it like financial education with his stupid teslas lol
With the decline in the market, you bet I'm going to take advantage of moving money from my Traditional IRA to my Roth IRA. I'm going in the backdoor hard this year. 😉
Traditional IRA is great for somebody who is in a high tax bracket now and will have a leaner retirement with yearly consistent withdrawals in retirement. Just don't withdraw massive amounts in any given year and keep yourself in a lower tax bracket and you could come out ahead.
I cashed out my IRA and went all in on virgin galactic! I'm going to 50X my portfolio!
I’m tryna retire and achieve FIRE at 37 so I’m a big fan of taxable income. Plus you any dividend income under 48000$ is not taxed and anything over is only 15%
WTF!! No more Jeremy content just because they threatened to ban you??? Where is your pride??? Who cares what the rules say, if you gonna change content your channel will fail for sure!!!!!!! Go back to Jeremy, Kevin bashing much more entertaining!!!!
how is a traditional ira different than a normal taxable brokerage? i get that you can't take out till you are 59.5 or whatever unless you pay a penalty if you have the traditional ira. my question is that i only currently have a taxable account but i buy and hold companies, im not getting taxed anyways on my taxable account. i may be getting taxed on dividends or if i sell in the rare case but otherwise i dont pay taxes to buy right? so how is a taxable account different from traditional ira?