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4 Reasons You Should Consider A ROTH IRA:
Following the passing of the SECURE Act there have been a few major changes to your retirement accounts. Today we go over 4 reasons to consider adding a ROTH IRA or 401k to your financial tool belt.
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4 Reasons You Should Consider a Roth IRA (SECURE Act)
In today’s world, planning for retirement has become more critical than ever before. With that in mind, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law in December 2019 to make retirement saving more accessible and secure for Americans. One notable provision of this act involves Roth Individual Retirement Accounts (IRAs), offering several advantages worth considering. If you haven’t explored the benefits of a Roth IRA, here are four reasons why you should:
1. Tax-Free Distributions:
One of the main advantages of a Roth IRA is that qualified withdrawals are tax-free. The contributions made to a Roth IRA are after-tax dollars, meaning that you’ve already paid income taxes on the money you deposit. Consequently, when you retire and begin making withdrawals, you won’t be subject to additional taxes. This can be a significant advantage for individuals concerned about their tax liability in retirement.
2. No Required Minimum Distributions (RMDs):
Unlike traditional IRAs, Roth IRAs do not mandate minimum distributions during your lifetime. With a traditional IRA, the IRS requires you to start withdrawing a certain amount annually after reaching the age of 72. However, with a Roth IRA, you have the flexibility to leave the funds untouched for as long as you like, allowing for potential growth and continued tax-free benefits.
3. Secure Act Extends Contribution Age Limit:
Prior to the SECURE Act, individuals could not contribute to a traditional IRA after the age of 70 ½, irrespective of whether they were still working. However, this legislation introduced changes by removing the age limit for contributions to traditional IRAs. As a result, individuals who continue to work into their 70s or beyond can now contribute to a Roth IRA, benefiting from the tax advantages and potential growth.
4. Tax Planning and Estate Planning Benefits:
Roth IRAs offer unique tax planning opportunities. Since withdrawals are tax-free, you have the flexibility to time your distributions strategically to minimize your tax burden. Additionally, a Roth IRA can play a vital role in estate planning. By designating beneficiaries for your Roth IRA, you can pass on this tax-free growth potential to your heirs. In contrast, beneficiaries of traditional IRAs are subject to income tax when withdrawals are made. If you’re looking for efficient strategies to pass on wealth to the next generation while minimizing tax implications, a Roth IRA can be an excellent tool for estate preservation.
In conclusion, the SECURE Act has breathed new life into Roth IRAs by providing additional incentives to save for retirement. The tax-free distributions, freedom from required minimum distributions, extended contribution age limit, and tax and estate planning benefits make Roth IRAs an attractive retirement savings option. Working with a financial advisor to understand the intricacies of the SECURE Act and its implications on your specific circumstances can help you make informed decisions about incorporating Roth IRAs into your retirement strategy.
Live off of 24,000? How does that work when the mortgage payment is $2k a month?
Great video. Can you share something on total contribution limits on Roth and traditional IRA’s in the same year? Can I contribute to each? Is the limit aggregated? Or are there separate limits for each?
Say your homes, because I want a vacation home too and vehicle is paid by the time I reach 59 1/2 I don’t think I would need so much money to live. Like on the examples more than 120,000 at year.
Jello great vids. Learning an awful lot. How can I take advantage of a Roth ira if I'm earning more then 200k per year? What else is available to someone like me
I do both. My company 401k match is 100% of 6% and that's all I contribute, simply for the match. My personal Roth IRA, for all the reasons you've stated, is why I max it out. I really enjoy your content, it's simple and direct. Keep up the good work.
Im late to the game but i just opened up a Roth IRA with betterment 90/10 stock/bound. Im 26 but its better to start now than later. I have $20K saved, $14K since i put $6K into the roth. I live on $12,000/year and make $22,800/year from 2 jobs.
What about people at higher tax bracket? Like someone who is in 35% tax bracket now, but planning to take less income withdrawn from retirement accounts with tax bracket 24% during retirement. Wouldn't it be better to put money in traditional 401k and invest the difference (35%) in taxable accounts? This way, at retirement, my tax bracket is lower at 24% and dividend and capital gains is taxed at 15%. I know that I am getting double taxed on taxable account (35% income tax now then 15% for dividend or capital gains). For example, instead of putting $1300($2000 before tax) in roth 401k, I put $1300 pre-tax in traditional 401k, then invest $455(after 35% tax of the difference of $700) in taxable account. After 30 years with 8% compound interest in all accounts, I will end up with $1.95M in Roth 401k or $1.95M in traditional 401k with $682k in taxable account. So 30 years later, I want to take out $100k a year from traditional 401k with tax bracket of 24%. For $100k a year, effective tax rate is 15.25%, which brings me down to $84750 whereas Roth 401k will leave me with tax-free $100k. Then if I try to bring my income up to $100k, I would have to make up the difference of $15250 from taking money out of my taxable account. With 15% capital gains tax rate. I would have to take out $17941 from my taxable account, which is about 2.6% of my total taxable account balance of $682k. $100k is about 5.1% of $1.95M and since I would have to use less than 5.1% of my taxable account money to make up for the difference, it seems traditional 401k wins in my case over roth 401k. Thanks for reading this and please let me know if any of my math is wrong.
I’m ambivalent about leaving much of an inheritance. Really, the best inheritance I can give my kids and grandkids is teaching them to be successful themselves.
I gotta Roth 401K through my employer and plan to get a Roth IRA in the near future because their are more options. Does the Roth 401k have the same advantages as all the Roth IRA you’ve mentioned in this video?
I have a traditional IRA CD for tax reduction every year to the maximum IRS allow which is $7000.00 for me. When the CD mature, can I put the maturity CD into the Roth? If I can do that, does this transaction interfere with the yearly contribution that the IRS allow.
HSA is probably the best.
Great educational video on the power of a Roth IRA.
All reasons are important and neatly explained in the video, especially the no. 2 Retairement tax planning flexibility.
I'm making videos about international investing. If your interested in investments from a Non-American, take a look at my videos.
Paying taxes now gives you less to worry about when you retire. But roth IRA has a lot lower limit compared to traditional 401k. Either way as long as you invest you'll be good
Why show an example that completely blows over the $5000 yearly contribution limit for people who are under 50.. how much are you legally allowed to contribute and how much would that make. That is the video i would like to see.
Great video, as usual. One thing to note is that while Roth IRAs have no age based minimum distribution requirements, most (if not all) Roth 401 Ks do. There are also other advantages to Roth IRAs, including potentially reducing the percentage of your social security payments you have to pay taxes on, and reducing any medicare IRMA payments you may have.
Thank you for sharing this. I have a question, I have a Roth IRA account and 401k, but god know when am I gonna lose my job in this situation. Is transfer 401k to IRA a good idea? Can I have Roth IRA and IRA together? Thanks!!
i put a bit of money in both
Do both.
Thanks for the new video Daniel. You always give me things to think about and consider. For instance…
Does that make using a Roth conversion strategy is kind of the best of both worlds? Tax deferred investing for the additional compounding combined with the freedom to slowly convert your contributions into a Roth sooner to minimize the tax implications later on in life? Or does it come out a wash and better off just starting with the Roth?
I'm wondering if may need to rethink my investment strategy just a little. Most of our money goes into my wife's 457b, my 401k (up to company match) and a set $ amount into our HSA every twice monthly. Whatever is left after that has been going into a Traditional IRA, because we won't need the money for about 10yrs and plan to start doing conversions before retirement. Maybe we should just be putting that extra money into a Roth IRA instead? We're in a low tax bracket now so it could make sense but we actually plan on making less money (not including inflation) in retirement, so I'm not sure.
Learned so much.
Very informative, thanks for the video!
informative video
Great video as always!
IRA OR NO IRA as long as you are investing a good chuck of your income you will be fine but yes Roth IRA helps
I just wish the would allow a much more contribution into a Roth IRA, That's the only retirement plan that truly make sense to me.