Why Roth Investments Are Better Than Traditional

The only part he is missing is this. To contribute 96000, you are taking taxed $96000. So you had to make more like 115,000 or 120,000 to contribute that 96000. So a 96000 Roth contribution is more like 115,000 Traditionl contritbuton. Either way you you took 115,000 of your salary and put it towards your retirement. Also the tax implications of having a higher taxable income when contributing to a Roth. This is why you do both though.

My portfolio doesn’t just cater to dividend stocks. I hold $VFIAX (S&P 500 index fund) in my Roth IRA and $VTI (Total Stock Market ETF) in my taxable brokerage account. Two of my largest holdings. The individual dividend stock positions all complement the index holdings.

Investing in a Roth IRA is a great option because it's funded with after-tax dollars, allowing your contributions to grow tax-free over time. When you retire and start taking money out, you won’t owe taxes on your withdrawals, helping you hold onto more of your savings. I personally retired with $5 million.

I don't follow Ramsey's logic. Paying the same percentage of taxes on a little amount now, vs a larger amount later doesn't make a difference. In addition, I need to see the math where people are making more money in retirement than while they are working.

lol not dramatically, that’s funny, any bit lower in taxes in retirement you are better off. And people don’t put the same in traditional and Roth. They put much less in Roth! Roth is expensive!

Roth for sure is king in your early years of saving, because your probably not in a high enough tax bracket for the tax savings to matter and you have a long time for that money to grow. But if you are getting close to retirement a traditional might make more sense as your probably in your peak earning years and there isn't as much time for the money to grow before retirement. Where the transition is, is a tough call and depends on each individuals income and savings journey.

There is another consideration that makes the traditional IRA better in some circumstances. If I put $1000 in a Roth IRA and that investments gains 11% a year for 30 years I will have $20,624. If I take a traditional IRA I get a tax break. If I am in the 30% tax bracket and invest this tax savings into a traditional IRA, it allows me to place $1300 in the IRA. This will give me $26,811 at 11% a year for 30 years. The key question is what tax bracket I will be in after 30 years. If it is a 20% tax bracket I am paying $5,362 in taxes making the traditional IRA a little bit better than the Roth. If I am still in a 30% tax bracket then the Roth IRA is better.

Most of my money is in ETFs. But I do have a small allocation to individual stocks that I have a strong conviction in. Strong foundation first.

This is why people get confused. Mathematically, Roth is NOT superior to Traditional. Yes, if you can trick yourself psychologically to contribute to Roth and pay taxes rather than spend the tax money on a consumption item, you'll be better off. But that's psychological, not mathematical. Most people in their peak earning years are going to be in a higher tax bracket (22-24% currently) than what they're going to be in retirement (12% up to $125k HHI before deduductions). Most people should take the tax break at the 24% bracket, invest and grow their account, then convert as much as possible in the 12% bracket before RMDs begin. I helped family members convert a mid-6 figure retirement over 5 years this way. By next year, they'll have saved $50K in taxes by filling up the 12% tax bucket rather than pay taxes earlier.

I will be 65 in January and will retire along with the wife 4 months later in June. I have a work 401K and plan to roll it over to a Roth IRA when I retire. I also have another retirement savings I plan to roll that over too. But I’ve recently come across one of my stocks that’s tripled and plan to sell it all except for 100 shares. Should I take that and open my Roth IRA? That way I’ll have it already set up for transferring my retirement accounts to Roth IRA.

I just switched up my Roth IRA to 50% SCHD, 25% SCHX, 25% SCHG, and my Roth 401k is 70% vanguard S&P 500 index, 20% vanguard growth index, and 10% vanguard international index. Seeking best possible ways to grow $350k into $1m+ before retirement, I'm 55.

Ramsey's math is plain wrong.

I disagree with Ramsey's analysis. He doesn't mention the tax savings of Traditional IRAs -- money which could be invested. With Roth's, you don't have this additional tax savings. Whether you invest in a Traditional or ROTH IRA doesn't matter in the end. What matters is your tax bracket when you're required to take RMDs.

Becoming a millionaire through a Roth IRA or a 401(k) involves different strategies for maximizing profits. A Roth IRA offers tax-free withdrawals in retirement, which can be advantageous if you expect to be in a higher tax bracket later in life. On the other hand, a 401(k) provides tax-deferred growth and potential employer contributions, boosting your savings. The optimal choice depends on factors like your current and future tax situation, employer match, and investment options. Consulting a financial advisor can help tailor a strategy that aligns with your financial goals and circumstances.

I think I am the youngest in the comments, I’m guessing I am on the right track. I see a lot of “I wish I would have started when I was younger” and I’m only 24 and still think the same thing. Def getting a ROTH

Tax a little money now rather than tax a lot of money later.

That's basically the advantage of investing in a ROTH IRA.

Tax the seed now instead of taxing the harvest later.

Roth IRA hands down.

The S&P 500 moved 8.9% higher last Month, achieving one of its best monthly performances in history.. which is an indicator for profits to continue to improve. I just want my money to keep outgrowing the inflation rate. I'm still looking for companies to make additions to my $500K portfolio, to boost performance. Here for ideas...

Investments are the roots of financial security; the deeper they grow, the stronger your future will be."

Wow. ignoring the math because "that's not what people do", is just. SOOOO Dave Ramsey.

I converted my 401k to a Roth IRA to avoid higher taxes in the future. I'd rather pay taxes now than be stuck paying taxes on my retirement income when I'm 59 and living off my savings.

I'm a financial advisor. Depends on the person and state, and many other things. Some people traditional is better, some, Roth. Usually doing traditional is best during highest earning years prior to retirement, then when you retire, get residency in no income tax state, wait on social security, and do large Roth conversions up to your target bracket. If your advisor isn't doing this work (which can save you millions in taxes + compounding of savings) they suck.

At my work if my 401k has a roth option but matching goes to the traditional account….. should I go with the roth

The best advice I promise you is to know that you should not take investment advice from Dave.

for those who inherit the Roth it certainly is better. but for the retiree, they should have some of both, pretax and after tax.

Traditional usually work better. When you put into a traditional IRA your savings are at your marginal rate often 24-32%. Withdrawals are taxed at effective tax rate (usually 12-15%). Even if make the same amount and are in the same brackets, the traditional wins this math.

I put 3% each into traditional and Roth 401k (6% total). So I should put all 6% into Roth 401k?..

BLANKET STATEMENT ALERT!!!! No it is not true that Roth is always better than traditional. It is not true the traditional is always better than Roth. Roth IS BETTER to contribute to if you are currently in a top tax bracket LOWER than what your top tax bracket will be in retirement. Traditional IS BETTER to contribute to than Roth if your current top tax bracket is higher than what it will be in retirement. Saying anything to the contrary is DISSERVICE to the public!!! Guess what? If your tax brackets are the same pre and post retirement, the outcome is the SAME whether you choose ROTH or TRADITIONAL!!! Your ending principal balance in retirement after all taxes paid is THE SAME for both account types. Don't confuse people by leading them to think otherwise.

Investing in Roth IRA can be a good choice since they are funded with after tax dollars, your contributions can grow tax-free over time. When you withdraw money from your Roth IRA in retirement, you won’t have to pay tax on it, which will help you keep more of your hard-earned money.

I was 44 until i started a Roth, don't be like me!!

Why would i want to taxes now when im in a much higher tax bracket now than i will be when i retire? Household income is just under $500k now and when i retire ill be paying much lower tax rate.

Can you do both roth and traditional?

CPA here: what Dave isn’t taking into account is that apples to apples, you could’ve put 135 pretax into a traditional or 96 postax into a Roth. With this logic the returns turn out identical if the tax bracket at retirement is equal to current tax bracket. Changes in tax brackets and ability to withdrawal Roth contributions early without penalty are there main deciding factors

What if you have both

I am 27 and i just started my ROTH IRA and deposited the max for 2024! I feel stupid for how long it took to get my life straight. The problem here is, what is the best way to invest the money to grow to $1 million for retirement?

What type of financial advisor would tell you that makes no sense Rale IRA investment doesn’t always beat the traditional IRA investment. It really does depend on your financial situation. If you are lower income, we typically tell people you need to go traditional if you plan on remaining low income and when I say low income, I mean once you retire, you won’t be doing any other activities to bring in money besides Social Security Traditional is better. Yes you have to pay taxes when you withdraw but since you have little to know, taxable income once you are withdrawing the money, you don’t pay taxes. If you plan on having tax income when you retire, and it has to be a certain amount of taxable income. There is a threshold where it’s more beneficial to have paid the taxes before hand rather than paying them now, but you have to calculate that individually

The part that I’m confused on is the maximum income requirements , I’m 25 now making 150k a year and will be clearing 200-300k by 30 , I plan on owning 3 properties one being a multi unit rental to cash flow by the time I retire, I’d love to retire at 55 but I’m not sure if Roth is right for me , I also have a company retirement that is very competitive

I heard something and want to confirm this is true. For the 401k the 5% "Match" by the company is always TRADITIONAL is that true? Sounds like the best plan is to do your contribution as 100% ROTH (up to 5% it's matched with 5% Traditional) but anything above just goes into your Roth.

If you have a pension and you have a great income, along with the minimum required distributions you won't have a dramatically lower income. It makes no sense to stick with the Traditional at that point, but to go Roth only from here to retirement.

What if you have contributed to a traditional up to this point but now want to stop those contributions all together and go ROTH Only?

Investing in a Roth IRA is a great option because it's funded with after-tax dollars, allowing your contributions to grow tax-free over time. When you retire and start taking money out, you won’t owe taxes on your withdrawals, helping you hold onto more of your savings. I personally retired with $5 million.

People who are able to retire early are lucky . I have 15 months till 65 and need to look at calling it quits, my only fear is running out of funds much later, thus keen on investing. What could be the safest possible ways to invest for cashflow, in order to afford lifestyle after retirement?

What would be the difference in putting my money in a Roth IRA vs just investing in something like VOO and then when I retire living in a good range for long term capital gains tax? I’m in my late 20s and have watched people around me struggle to survive my whole life and want to change the cycle. I also don’t want to have work for the next 40 years. Maybe I’m wrong but the way I understand it you can’t touch a Roth before 60 without fees. And again I may be wrong but the way I understand it is if I invest straight into the stock then when I want to pull money out if my income is under a certain amount my long term capital gains tax are 0%. Aka if I have no income except what I’m pulling out I would have no taxes if I pull less than that amount. Again please correct me if I’m wrong. I want to go about this in the right way so I can live a comfortable life one day.

What does he mean by match

What about the impact of interest gained on untaxed income?

I’ve definitely heard this guy said that he doesn’t like Roth IRA

Should you actually account for the taxes, ($130 in traditional vs. $100 in ROTH) do you end up with the same spendable amount?

I've been reconsidering my retirement strategy, questioning if my 401(k) and IRA are enough for a secure future. I’ve also invested $300K in the stock market, but the returns have been inconsistent and modest. I'm looking for an investment approach that better aligns with my risk tolerance and financial objectives.

What's the best Roth IRA?

Someday, Dave will show us actual math.