Another great video. Only other thing I say to people is that we have no idea what the future will be, so much like everything else in life, diversify where/when you can (and where it makes sense). If you’re totally in traditional IRA, then getting started in some form of Roth makes sense and vice versa. This way when you do retire, you can handle whatever changes come to take advantage of the rules at that time to maximize your investments.
Hey Anthony. Thanks for watching and you bring up a fantastic point. I probably need to drop that tidbit in future videos. Often times I will show what the spreadsheet says is the best decision. But to your point, balance is key! For example, my wife and I a few years back started to work on our taxable account a little more. Yes, it's not 'the best' dollar for dollar, but we will ultimately need to cover the taxes for our Roth Conversion ladder. I'm going to share the detailed plan soon, and I will try to remember to mention that balance is key.
@ Yup - particularly for those of us who believe in the system you’ve laid out, where it isn’t just all about chasing max returns, you want to give yourself the most options and diversity to manage any situation… having multiple ways of pulling money from tax free and taxable accounts come retirement helps you ensure you can take advantage of whatever administration and tax system is in place decades from now
@@JeffTeeples Agree with this! I think of my parents that ended up with nearly all tax deferred, no one told them about Roth conversions (not even their financial advisor, doh) and they never had a taxable and very little in Roth. Now at 73 they are getting hit hard with RMD's and every dollar they want to take out is getting hit with like 28% tax minimum.
Hey Jeff! Great video! I was trying to make sense of the aarp calculator on my own. The calculator assumes one will invest the tax difference in take home pay (Roth vs trad) into a non-tax deferred account. That got me rethinking my own situation. What a great idea!
Hey Nick. That is a great point that you make. Investments with the tax savings are assumed with the calculator. I have a video coming this weekend that will detail my specific strategy for conversions. Everyone will have a unique situation, but it could give a 'general perspective' on when and why to convert & how to cover the taxes. Stay tuned, and thanks for watching this video!
ThanX Jeff.... Great video on the tax system..... I am at that crossroads of whether to convert my Traditional (or my currently working wife too) IRA to the Roth IRA. I am retired and I did contact a CPA and he advised me that in my case - it would be better not to convert..... With the recent election - I was wonder how income tax might play out or is that a monster too big to change. As we go forward, I will continue to study the topic and check with some others..... Thanks again for some good insight about our tax system..... Please take care and enjoy your week ahead....
Hey Lance. He or she is likely spot on with the conversion strategy (waiting in your case) if you're in the 22% tax bracket or higher in the current year. I have a video coming this Sunday that could be helpful (detailing my specific conversion strategy). Every situation is different, but it will give some insight on when and why to convert 'in general'. Stay tuned.
I bought 10,000 shares of JEPAX in my Fidelity 403B, I have a 10% match and contribute 10%. The JEPAX dividend income will be used to buy FXAIX and my contributions and match will be used to buy a Fidelity Software/ Technology fund.
Hey Chris. That is a solid system for getting money to reinvest into the heavy hitters. If you have 10+ years before retirement, you 'may' consider going directly with FXAIX and FTEC (or whatever the tech fund is for you). I'm not saying you have to (of course), but over time, covered call ETFs fall short of the underlying index 'unless' the performance is negative during the horizon. I haven't seen a long-term win from one (ever) vs a low-cost same index peer. I love the strategy in general, and plan to use a ton of JEPQ in retirement with similar logic when I want a higher floor. Just casually putting this out there.
Great video Jeff! I was on Amazon and saw they had some notebooks and coffee mugs that would be perfect for you. They said, "keep calm I have a spreadsheet for that!" Lol
rofl Chris. Love that one. I literally may buy one right now. And that is the real literal there (Amazon order complete, hanger for man cave ) Thanks for watching and for leaving a comment. I appreciate your continued support of the channel!
Great video, Jeff! As an over 63 year old, I have no idea why the IRS limited that catchup bump to 60-63 as many older adults are still working after age 64 and should be able to benefit from that catchup as well. Especially when considering they are about to face a SS reduction just at the time they expect to retire. Also, not to split hairs b/c everyone says this, but an IRA is actually an Individual Retirement Arrangement (not Account).
Thanks for watching and for the feedback. I had a huge smile with the arrangement comment (which I was aware of as a huge reading nerd, but I go with the 'common lingo' on this one). You are 100% right. I also find the 63 limit weird. Leave it to the IRS to make it awkward. It's like the LTCG income limits for each bracket annoyingly not quite matching up with the federal tax table brackets. I always shake my head at these things. We can never make anything easy here (:
I just suggested to my 25 yr old daughter that she put 50% into her 357 IRA with the state and 50% into a Roth vgt/schd/voo. I explained that because i have no idea what her future taxation will be, this might be the safest bet for her future of 20 or more years. Changes can be made, if need be but the goal is to start, automate and let time do the work.
Hey Roy. Thanks for watching and sharing. I think a nice balance is always a good idea. If she is in the 12% bracket or lower, I would focus on the after tax contributions (doesn't have to be 100%, but the majority will very likely have more purchasing power later). And if she is in the 32% or higher, I would definitely focus pre-tax dollars. That 22 to 24% range is the one with wiggle room where a 50/50 split is a solid approach.
I’m pretty sure you can remove contributions from a Roth IRA at any time. You only have to have it open 5 years to withdraw earnings and of course you have to be 59 1/2 too.
Hey Jason. Thanks for watching and commenting. You do not need to be 59 1/2 to withdraw money from your Roth IRA tax and penalty free. You have to have had the account opened and funded for 5 years in most cases (conversions are a bit different, they get a separate cooldown window, I'll get into this in my next video). If you open one at 22, you are able to take the money out at 27 up to the amount you have contributed (not the earnings). However, don't do this unless you absolutely have to because compounding tax free wealth is a powerful tool.
Hi Jeff, you mentioned before that SCHD is better in a taxable account rather than a Roth or tax-advantaged account because you can better benefit from the qualified dividend. However, for someone living in California, wouldn’t it be better to hold SCHD in a tax-advantaged account to avoid both federal and state taxes on dividends and principal withdrawals later? That way, you pay zero tax. Am I missing something here?
Hey Idan. I should specify here. Everything is better in a tax protected account. SCHD, REITS, JEPQ, VOO, VGT, etc. It is objectively better to not pay taxes. I guess my point was that SCHD is superior in a taxable account 'compared to' things like REITS and covered call ETFs. Basically, anything with qualified dividends is 'comparatively better' in a taxable account because it doesn't add to your federal tax tables (it uses the special long-term capital gains). But in reality, ALL holdings are better in the tax advantaged accounts (:
Hi Jeff - I really enjoyed your video! It would be great if you would do a video in the future on the Roth 401K. Here are the current questions I have related to this investment vehicle: Do you recommend the Roth 401K? What are the 2025 Roth 401k limits to the 403(b) for individuals who are 61 years and older? What are the 2025 Roth 401K limits to the 457(b) for individuals who are 61 years and older? How do contributions to this investment vehicle impact your 401K contributions, taxes and after tax income? Are you able to transfer the investments in the Roth 401K to your traditional Roth account after you leave your employer or retire? Please consider creating a Roth 401K spreadsheet tool that is similar to the AARP tool you used as an example in your video today. Thanks!
Hey Bruce! Thank you for watching and great idea on the video. I do need to do a couple videos that get more specific into each account type. The short answer is that 401k (Roth and traditional), 403B, and 457b all have the same contribution limits from this video (401k was my examples). Age 60 to 63 get the nice catch-up of $11,250 for these plans in addition to the $23,500. All can be rolled to a traditional or Roth IRA (depending on pre-tax dollars or Roth dollars) when you leave a company. That is great news and exactly what I did when I left my companies over the years. Ultimately, all of my stuff rolled into a single Roth IRA and a single traditional IRA within E*Trade. Makes it cleaner and more controllable from an investment perspective. I think more videos on this could help. Maybe a single video on the company retirement plans, and another on IRA. Got into some more details on each. I'll go to the drawing board.
This is a great question. It depends on your situation and the investment options (often limited) in the 401k. For example, my wife and I have always had a low-cost S&P 500 fund available in 401k. So we max the entire 401k with priority (beyond company match) over the broker. We were in the 22% to 24% tax bracket, and we love the pre-tax dollars for building wealth in something that we would invest in anyway (VOO). If the options are limited, or you need more available funds, a brokerage account is great. There is no one right answer to this one for everyone.
Don't forget spousal roth, if one partner doesn't work, can still have a roth based on spouse's income, is this still allowed in 2025? Thanks for the info!
Hey Julie. Great call! I didn't want this video to do too long, but you are absolutely right. I need to make one like I did last year that goes into more depth of each account type. Spousal funding is still available and as powerful as ever (: Thanks for watching and for the comment.
Pre-tax 401k contributions do not lower FICA taxes. However, this is a good thing . Social security projections haven't had a bright future in a while now (: I think it will be fine, but hoping that it doesn't dip below 100% payments for too many years (a cut in payments is close to inevitable at this point, but the window is debatable).
I don't know about GRNY. A quick look tells me I would stay away from both of those funds due to the high expenses, actively managed nature, and a strategy that doesn't align with my goals. Just speaking for myself here, not saying that others should follow.
If there was a mutual fund version of JEPQ, I’d buy it. JEPAX is the mutual fund version of JEPI. My 403B doesn’t allow me to buy JEPI or JEPQ, which is why I have JEPAX.
I will be a Tax Free Millionaire in 3 years. I have maxed out my Roth 401k and Roth IRA for this year. $30k eaxh yr till i am a Tax Free Millionaire. 🎉🎉🎉🎉🎉🎉
SCHD Stan in the house. Thanks for tuning in. This topic is boring but way too powerful to ignore each year! I think, but I'm not 100% sure, my next video will be my specific plan to retire and produce 6 figures of income at 0% taxes for life. That would will be a little spicier.
I have wanted to see this one go up for a while as well. The peg it to inflation and then round, so a lot of times the smaller dollar limits take forever to get the bump. Boooooo.
Hi Jeff, did I understand you correctly that I can no longer contribute to a Roth IRA once I no longer have earned income? I was planning on retiring at 55 next year on my 403b, but wanted to continue funding my Roth IRA with my cash savings through age 60 for a future nest egg. If correct, that changes my retirement plans significantly.
Hey Matthew. That is correct, unfortunately. If you, or a spouse, has the income to cover the IRA contributions that will work. But no 'earned income' means no contributions allowed. Pension and social security income do not count, along with passive investment income.
The reason why many people prefer Roth IRA/401k is because they do not have faith in the government and are afraid of future taxes. We don't know how future is going to be in 30+ years. The best thing to do is use what works best for you in the moment.
I agree with this comment 100%. That is why it is a 'debate'. Technically if we knew the future tax tables it would not be up for debate. That said, 12% (or 15% soon) and under = Roth. And 32% and up reasonably = traditional. At least with most of the contributions. I would recommend studying the history of the tax tables. People are commonly surprised with the 'general' consistency (especially in lowest and highest brackets) of the limits per bracket. 22% to 24% is where there is no 'reasonably right' answer for everyone. I think there is, but again, this is strictly off history that CAN change to your point.
Hey Idan. Great question! You are able to contribute to a Roth IRA (in additional to your solo 401k) as a self employed person. However, Roth contributions to your solo 401k are effectively identical to Roth IRA contributions. But if you can afford to max out both, I wouldn't hesitate. Or if the investing options are different for your (often times better in Roth IRA) then I would focus on that. After your career, you will be able to do a tax free (because it's Roth, already taxed) rollover from your solo 401k to your Roth IRA. Again, this is assuming you made Roth contributions to your solo 401k. I would focus on the Roth IRA first each year if you are making Roth solo 401k contributions in general. Cleans up the long-term process. But if you're in the 22% tax bracket or higher, I personally would choose pre-tax traditional contributions to the solo 401k over Roth anything during your working years. Then focus on a Roth conversion ladder later (more info in next video, or maybe in 2 videos from now).
Hi Jeff, I currently have a SEP IRA (not a Solo 401k). If I understand you correctly, since I’m in a higher tax bracket right now, it’s best to keep it as is and consider a Roth conversion in the future when/if my tax bracket is lower. I’ve also always been a bit confused about the differences between a SEP IRA and a Solo 401k. That said, my main investments are in a taxable account rather than the SEP IRA, and I’m trying to understand if that’s the right approach.
That is the right approach in my opinion. Every situation is a little different, but I think you are doing it the right way to maximize your future purchasing power. It is common for people to worry about taxes in the future, and has been for many decades now. But 'so far', the brackets have been more consistent than people realize. I think the lower brackets (we can use in retirement) will always remain favorable.
Ready to boost your retirement savings in 2025? Let me know your thoughts or questions below, and let's build wealth together!
Another great video. Only other thing I say to people is that we have no idea what the future will be, so much like everything else in life, diversify where/when you can (and where it makes sense). If you’re totally in traditional IRA, then getting started in some form of Roth makes sense and vice versa. This way when you do retire, you can handle whatever changes come to take advantage of the rules at that time to maximize your investments.
Hey Anthony. Thanks for watching and you bring up a fantastic point. I probably need to drop that tidbit in future videos. Often times I will show what the spreadsheet says is the best decision. But to your point, balance is key! For example, my wife and I a few years back started to work on our taxable account a little more. Yes, it's not 'the best' dollar for dollar, but we will ultimately need to cover the taxes for our Roth Conversion ladder. I'm going to share the detailed plan soon, and I will try to remember to mention that balance is key.
@ Yup - particularly for those of us who believe in the system you’ve laid out, where it isn’t just all about chasing max returns, you want to give yourself the most options and diversity to manage any situation… having multiple ways of pulling money from tax free and taxable accounts come retirement helps you ensure you can take advantage of whatever administration and tax system is in place decades from now
@@JeffTeeples Agree with this! I think of my parents that ended up with nearly all tax deferred, no one told them about Roth conversions (not even their financial advisor, doh) and they never had a taxable and very little in Roth. Now at 73 they are getting hit hard with RMD's and every dollar they want to take out is getting hit with like 28% tax minimum.
keep pumping out those financial informational videos Jeff!!!!
Thanks Kevin. Will do!
Great info and video!
Thanks for watching Oldrin. I appreciate it.
Thanks Jeff
Thank you Stephen for taking the time to watch and comment. I appreciate the consistent support!
Hey Jeff! Great video! I was trying to make sense of the aarp calculator on my own. The calculator assumes one will invest the tax difference in take home pay (Roth vs trad) into a non-tax deferred account. That got me rethinking my own situation. What a great idea!
Hey Nick. That is a great point that you make. Investments with the tax savings are assumed with the calculator. I have a video coming this weekend that will detail my specific strategy for conversions. Everyone will have a unique situation, but it could give a 'general perspective' on when and why to convert & how to cover the taxes. Stay tuned, and thanks for watching this video!
ThanX Jeff.... Great video on the tax system..... I am at that crossroads of whether to convert my Traditional (or my currently working wife too) IRA to the Roth IRA. I am retired and I did contact a CPA and he advised me that in my case - it would be better not to convert..... With the recent election - I was wonder how income tax might play out or is that a monster too big to change. As we go forward, I will continue to study the topic and check with some others..... Thanks again for some good insight about our tax system..... Please take care and enjoy your week ahead....
Hey Lance. He or she is likely spot on with the conversion strategy (waiting in your case) if you're in the 22% tax bracket or higher in the current year. I have a video coming this Sunday that could be helpful (detailing my specific conversion strategy). Every situation is different, but it will give some insight on when and why to convert 'in general'. Stay tuned.
They need to increase the roth from 7k, been maxing that thing out the past 18 years
I agree. I wish it went up EVERY year. Great work maxing it out though, impressive!
I bought 10,000 shares of JEPAX in my Fidelity 403B, I have a 10% match and contribute 10%. The JEPAX dividend income will be used to buy FXAIX and my contributions and match will be used to buy a Fidelity Software/ Technology fund.
Hey Chris. That is a solid system for getting money to reinvest into the heavy hitters. If you have 10+ years before retirement, you 'may' consider going directly with FXAIX and FTEC (or whatever the tech fund is for you). I'm not saying you have to (of course), but over time, covered call ETFs fall short of the underlying index 'unless' the performance is negative during the horizon. I haven't seen a long-term win from one (ever) vs a low-cost same index peer.
I love the strategy in general, and plan to use a ton of JEPQ in retirement with similar logic when I want a higher floor. Just casually putting this out there.
Great video Jeff! I was on Amazon and saw they had some notebooks and coffee mugs that would be perfect for you. They said, "keep calm I have a spreadsheet for that!" Lol
rofl Chris. Love that one. I literally may buy one right now. And that is the real literal there (Amazon order complete, hanger for man cave )
Thanks for watching and for leaving a comment. I appreciate your continued support of the channel!
Great video, Jeff! As an over 63 year old, I have no idea why the IRS limited that catchup bump to 60-63 as many older adults are still working after age 64 and should be able to benefit from that catchup as well. Especially when considering they are about to face a SS reduction just at the time they expect to retire. Also, not to split hairs b/c everyone says this, but an IRA is actually an Individual Retirement Arrangement (not Account).
Thanks for watching and for the feedback. I had a huge smile with the arrangement comment (which I was aware of as a huge reading nerd, but I go with the 'common lingo' on this one). You are 100% right.
I also find the 63 limit weird. Leave it to the IRS to make it awkward. It's like the LTCG income limits for each bracket annoyingly not quite matching up with the federal tax table brackets. I always shake my head at these things. We can never make anything easy here (:
@@JeffTeeplesLOL, I appreciate all the great content you’re providing. Thank you!
Contribution to Roth IRA can be used in early retirement
Absolutely. This is my plan! More to come in the next video (: Thank you for watching and commenting.
I just suggested to my 25 yr old daughter that she put 50% into her 357 IRA with the state and 50% into a Roth vgt/schd/voo. I explained that because i have no idea what her future taxation will be, this might be the safest bet for her future of 20 or more years. Changes can be made, if need be but the goal is to start, automate and let time do the work.
Hey Roy. Thanks for watching and sharing. I think a nice balance is always a good idea. If she is in the 12% bracket or lower, I would focus on the after tax contributions (doesn't have to be 100%, but the majority will very likely have more purchasing power later). And if she is in the 32% or higher, I would definitely focus pre-tax dollars. That 22 to 24% range is the one with wiggle room where a 50/50 split is a solid approach.
I’m pretty sure you can remove contributions from a Roth IRA at any time. You only have to have it open 5 years to withdraw earnings and of course you have to be 59 1/2 too.
Hey Jason. Thanks for watching and commenting.
You do not need to be 59 1/2 to withdraw money from your Roth IRA tax and penalty free. You have to have had the account opened and funded for 5 years in most cases (conversions are a bit different, they get a separate cooldown window, I'll get into this in my next video).
If you open one at 22, you are able to take the money out at 27 up to the amount you have contributed (not the earnings). However, don't do this unless you absolutely have to because compounding tax free wealth is a powerful tool.
Hi Jeff, you mentioned before that SCHD is better in a taxable account rather than a Roth or tax-advantaged account because you can better benefit from the qualified dividend. However, for someone living in California, wouldn’t it be better to hold SCHD in a tax-advantaged account to avoid both federal and state taxes on dividends and principal withdrawals later? That way, you pay zero tax. Am I missing something here?
Hey Idan. I should specify here. Everything is better in a tax protected account. SCHD, REITS, JEPQ, VOO, VGT, etc. It is objectively better to not pay taxes.
I guess my point was that SCHD is superior in a taxable account 'compared to' things like REITS and covered call ETFs. Basically, anything with qualified dividends is 'comparatively better' in a taxable account because it doesn't add to your federal tax tables (it uses the special long-term capital gains).
But in reality, ALL holdings are better in the tax advantaged accounts (:
Hi Jeff - I really enjoyed your video! It would be great if you would do a video in the future on the Roth 401K. Here are the current questions I have related to this investment vehicle:
Do you recommend the Roth 401K? What are the 2025 Roth 401k limits to the 403(b) for individuals who are 61 years and older? What are the 2025 Roth 401K limits to the 457(b) for individuals who are 61 years and older? How do contributions to this investment vehicle impact your 401K contributions, taxes and after tax income? Are you able to transfer the investments in the Roth 401K to your traditional Roth account after you leave your employer or retire?
Please consider creating a Roth 401K spreadsheet tool that is similar to the AARP tool you used as an example in your video today.
Thanks!
I’m pretty sure the Roth 401(k) limits are the same as traditional 401(k) 403B4 57 etc.
Hey Bruce! Thank you for watching and great idea on the video. I do need to do a couple videos that get more specific into each account type.
The short answer is that 401k (Roth and traditional), 403B, and 457b all have the same contribution limits from this video (401k was my examples). Age 60 to 63 get the nice catch-up of $11,250 for these plans in addition to the $23,500.
All can be rolled to a traditional or Roth IRA (depending on pre-tax dollars or Roth dollars) when you leave a company. That is great news and exactly what I did when I left my companies over the years. Ultimately, all of my stuff rolled into a single Roth IRA and a single traditional IRA within E*Trade. Makes it cleaner and more controllable from an investment perspective.
I think more videos on this could help. Maybe a single video on the company retirement plans, and another on IRA. Got into some more details on each. I'll go to the drawing board.
Hey Kevin, you nailed it. Thank you!
Hey would it make sense to invest into the brokerage account after you maxed out the match?
This is a great question. It depends on your situation and the investment options (often limited) in the 401k.
For example, my wife and I have always had a low-cost S&P 500 fund available in 401k. So we max the entire 401k with priority (beyond company match) over the broker. We were in the 22% to 24% tax bracket, and we love the pre-tax dollars for building wealth in something that we would invest in anyway (VOO).
If the options are limited, or you need more available funds, a brokerage account is great. There is no one right answer to this one for everyone.
Don't forget spousal roth, if one partner doesn't work, can still have a roth based on spouse's income, is this still allowed in 2025? Thanks for the info!
Hey Julie. Great call! I didn't want this video to do too long, but you are absolutely right. I need to make one like I did last year that goes into more depth of each account type. Spousal funding is still available and as powerful as ever (: Thanks for watching and for the comment.
Must be 8am…CDT. Do pretax 401k contributions reduce FICA taxes by lowering income like federal & state taxes?
No
Pre-tax 401k contributions do not lower FICA taxes. However, this is a good thing . Social security projections haven't had a bright future in a while now (: I think it will be fine, but hoping that it doesn't dip below 100% payments for too many years (a cut in payments is close to inevitable at this point, but the window is debatable).
Anyone know about FEPI or GRNY? GRNY is a newish ETF but doesn't pay dividends? What am I not getting?
I don't know about GRNY. A quick look tells me I would stay away from both of those funds due to the high expenses, actively managed nature, and a strategy that doesn't align with my goals. Just speaking for myself here, not saying that others should follow.
@JeffTeeples thank you!
If there was a mutual fund version of JEPQ, I’d buy it. JEPAX is the mutual fund version of JEPI. My 403B doesn’t allow me to buy JEPI or JEPQ, which is why I have JEPAX.
I'm not going to lie, I had to look this up! It didn't ring a bell at first, but I figured out what it was shortly after. Thanks for watching.
I will be a Tax Free Millionaire in 3 years. I have maxed out my Roth 401k and Roth IRA for this year. $30k eaxh yr till i am a Tax Free Millionaire. 🎉🎉🎉🎉🎉🎉
That is AWESOME Rolando. Great work. Thanks for watching and commenting.
@JeffTeeples thanks
It’s Teeples Time!
SCHD Stan in the house. Thanks for tuning in. This topic is boring but way too powerful to ignore each year!
I think, but I'm not 100% sure, my next video will be my specific plan to retire and produce 6 figures of income at 0% taxes for life. That would will be a little spicier.
I, personally, am very disappointed that they didn't raise the catchup contribution limit. For the life of me, I cannot understand why they wouldn't.
I have wanted to see this one go up for a while as well. The peg it to inflation and then round, so a lot of times the smaller dollar limits take forever to get the bump. Boooooo.
Hi Jeff, did I understand you correctly that I can no longer contribute to a Roth IRA once I no longer have earned income? I was planning on retiring at 55 next year on my 403b, but wanted to continue funding my Roth IRA with my cash savings through age 60 for a future nest egg. If correct, that changes my retirement plans significantly.
Hey Matthew. That is correct, unfortunately. If you, or a spouse, has the income to cover the IRA contributions that will work. But no 'earned income' means no contributions allowed. Pension and social security income do not count, along with passive investment income.
The reason why many people prefer Roth IRA/401k is because they do not have faith in the government and are afraid of future taxes. We don't know how future is going to be in 30+ years.
The best thing to do is use what works best for you in the moment.
I agree with this comment 100%. That is why it is a 'debate'. Technically if we knew the future tax tables it would not be up for debate.
That said, 12% (or 15% soon) and under = Roth. And 32% and up reasonably = traditional. At least with most of the contributions. I would recommend studying the history of the tax tables. People are commonly surprised with the 'general' consistency (especially in lowest and highest brackets) of the limits per bracket.
22% to 24% is where there is no 'reasonably right' answer for everyone. I think there is, but again, this is strictly off history that CAN change to your point.
Hi Jeff, for self employed with no employees I can open a Roth ira for myself? I thought I can only do Sep Ira or solo 401k?
Hey Idan. Great question! You are able to contribute to a Roth IRA (in additional to your solo 401k) as a self employed person. However, Roth contributions to your solo 401k are effectively identical to Roth IRA contributions. But if you can afford to max out both, I wouldn't hesitate. Or if the investing options are different for your (often times better in Roth IRA) then I would focus on that.
After your career, you will be able to do a tax free (because it's Roth, already taxed) rollover from your solo 401k to your Roth IRA. Again, this is assuming you made Roth contributions to your solo 401k.
I would focus on the Roth IRA first each year if you are making Roth solo 401k contributions in general. Cleans up the long-term process.
But if you're in the 22% tax bracket or higher, I personally would choose pre-tax traditional contributions to the solo 401k over Roth anything during your working years. Then focus on a Roth conversion ladder later (more info in next video, or maybe in 2 videos from now).
Hi Jeff,
I currently have a SEP IRA (not a Solo 401k). If I understand you correctly, since I’m in a higher tax bracket right now, it’s best to keep it as is and consider a Roth conversion in the future when/if my tax bracket is lower.
I’ve also always been a bit confused about the differences between a SEP IRA and a Solo 401k. That said, my main investments are in a taxable account rather than the SEP IRA, and I’m trying to understand if that’s the right approach.
That is the right approach in my opinion. Every situation is a little different, but I think you are doing it the right way to maximize your future purchasing power. It is common for people to worry about taxes in the future, and has been for many decades now. But 'so far', the brackets have been more consistent than people realize. I think the lower brackets (we can use in retirement) will always remain favorable.