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 in 3 years.
This is precisely why I like having a portfolio coach guide my day-to-day market decisions: with their extensive knowledge of going long and short at the same time, using risk for its asymmetrical upside and laying it off as a hedge against the inevitable downward turns, their skillset makes it nearly impossible for them to underperform. I've been utilizing a portfolio coach for more than two years, and I've made over $800,000
She goes by “Sonya Lee Mitchell” a renowned figure in the financial industry with over two decades of experience. I'd suggest you research her further on the internet.
I am 53 and retired at 50. 1 thing I did do to retire early was to get out of the 401K and IRA programs. Bought rental real-estate and I am now a Limited Partner in about 1500+ units from collaborative efforts in the fund my estate planner has me invested in. I do not work.
I only contribute 5% to get full company match, that’s it. The 401K plan is designed for you to work until you are about dead. Also, the government does not have their hands on it yet either.
My wife and I live off of our 401K. We don't work. I recommend highly to everyone to build your 401K or Roth IRA's as an alternate revenue stream in retirement to your Social Security. An observation on 401K's is when it gets over 300K it starts to accelerate. When you get over 500K it can really accelerate as the stock market grows.
I've stuck with ‘’Julianne Iwersen Niemann” for about 9 years now, and her performance has been consistently impressive. She’s quite known in her field, look her up.
You are the only person who explains everything well for beginners and also get to the point without a lot of fluff to make your video "exciting or fun" ... I appreciate your videos so much and I'm so glad I found you!
You are gifted in teaching wow! I just graduated from college and recently started my Career in a much higher tax bracket than I anticipated! I didn’t even know much about tax bracket nor did I know anything about 401k or Roth401k! Thank you so much for this video! I just saved it for Future purposes and I will always return to it!
Not sure why every financial person says to always prioritize Roth vs traditional. It all depends on situation. I'm a young single guy who makes over six fig salary. I'm in a very high tax bracket and putting more toward my 401K reduces my taxable earnings from my very high tax bracket. When I retire I'll probably be married with many deductions. It all depends on someone's situation. Never one size fits all.
Thank you for the great info Rose. Make sure to check if your company allows a Roth IRA conversion to your Roth 401K. This can be a great way to funnel more money into your company's plan and are tax free upon withdrawal. You also have to consider your overall portfolio and what your goals and desired percentages are. Putting the max towards both of our Traditional and Roth 401K's (hedging), plus maxing out ESPP in both of our companies, makes us very invested in the stock market. So we don't do a backdoor Roth IRA/401K. It is a great option, but we like having more in local Real Estate in our portfolio. So we payoff our primary mortgage and will use the equity to buy another investment property in the near future. In your 401K, I don't really recommend those target date funds. They usually have some of the highest expense ratios in your 401K plan (compared to index funds). I prefer index funds and maybe the best performing mutual fund. You can shift to lower risk bonds and such as you get closer to retirement. This way your expense ratio is far less than a target date fund and you are doing the same thing they do. For example, the Fidelity 500 index fund has a 0.015% expense ratio, Small Cap index 0.025%, international index 0.035%, the target date funds are all 0.220%-0.270% (7-10x higher), mutual funds are usually double that around .44% (15-30x higher). These differences seem small, but Warren Buffett proved pegging an index returns over 10 years beat hedge funds/managed funds. Buffett's index returns were 85% and the best hedge fund was 63% with the average being 22%. So you are paying more for people to likely do worse than an index fund. Rose's video is an introduction video, but make sure you read up on your specific 401K plans, talk to a financial advisor about your own situation and goals, and then make large decisions about investing. I am a passive investor and have not been disappointed putting my hedged 401K money (both Roth and Traditional) into mostly index funds. When you look back at performance you usually lose to 1-2 mutual funds or 1-2 target fund by a few % points, but you beat the vast majority of your non-index options by % points. Remember that you usually charged fees everytime you move money between mutual/target date funds. Leaving them in index funds is the best way I have found to passively invest. Unless you can pick perfectly, then don't worry about index funds.
great video indicating the difference. It would be worth adding the 401K after tax contribution factor as well. While the typical pre-tax employee 401K contribution limit for 2020 is 19500, the combined employer and employee contribution limit (including pre-tax and post-tax contribution) is $57,000. What this means is that one could also choose to max out the pre-tax 401K contribution of 19500 and add the employer contribution to it (let's say 3K). Now you can invest the remaining $34.5K as after tax contribution to your 401K and then immediately rollover the that after tax contribution to roth (also termed as roth in plan conversion). This gives you the best of both worlds. Since a typical Roth IRA has the 6-7K limit, this option allows you to funnel 5 times the money to Roth and grow tax deferred. Having said that, it doesn't prevent you to contribute to the regular 6-7K to the Roth IRA yearly as well. Check out the Roth in plan conversion if you have not already...
$19,500 is not the annual contribution limit for 401(k)s. That figure is known as the employee deferral limit. However employer contributions and employee after-tax contributions are not restricted by this limit. The total combined (IRC section 415(c)) limit for 2020 is $57,000. This is also separate from catch-up contributions. This means your employer or you through after-tax contributions could add an additional $37,500 to your account, depending on what your plan allows or provides for. My employer contributes 50 cents for every dollar we contribute up to that first $19,500 limit - so up to $9,750 in 2020. They also allow us to use the rest of the limit ($27,750) to make mega-backdoor Roth 401(k) contributions.
I'd also recommend looking into after-tax 401k (not to be confused with Roth 401k) especially if you have an in plan Roth conversion. With that you can invest beyond the $19,500, benefit from both pre-tax benefits and Roth benefits in the future.
Nailed it Rose. We are bless that we are able to max both Roth and Roth-401k. Being over the age 55 it has helping greatly in helping us to catch up to a higher goal amount for retirement. Keep up the great work.
Great Video! I think you did a great job of pointing out in which account to allocate your retirement contributions. 401K Roth to get the company match, Roth IRA Max, and then 401K Roth Max if you can afford it. The reasoning was simple, better choices in the Roth IRA. The one thing I would have added is that most if not all Company 401K plans charge an Administrative fee. I've seen this fee as large as 1.25%. Since most 401K plans offer both Target and Index funds and that is what you are recommending, then the Administrative fee on the 401K plan would be my number one reason to max out my Roth IRA after the company match. I know you covered those fees later in the video but you never really associated it with the contributions/allocations portion of the video. Not sure if you are interested but I have some other thoughts about future videos if you would like to hear them. Thanks...
In 2018, I joined a company that offered a Roth 401k and this was the first company that I worked for that offered one. I'm maxing it out but there's a bit of planning to do in order to get the maximum company match since they match 5% on each pay period. For example, if I maxed my 401k out in the first 6 months, I would only get half of my company match for the year. I built a spreadsheet that breaks down my contributions pay pay period so I can adjust the percentages and get as close as I can to the maximum amount on the last pay period of the year. Great video as always, Rose!
Young people. Don't neglect these saving technique. My gram retired and was in ailing health and barely was able to afford oil for heating and practically overnight a former employer who held her money for retirement found her and now she lives in comfortably and securely.
I believe it also depends on the yearly withdrawal amount when you retire. For me personally, I prefer 401k/403b. I will be in a much lower income tax bracket when I retire, and I also like the lower AGI as I max out my 403b (my company offers 403b) every year. At the same time, I invest the saved money in Roth IRA and taxable account. If your yearly retirement withdrawal lands you in a higher tax bracket, then I would recommend you pay your tax now by choosing Roth 401k/Roth 403b. If your yearly retirement income will be the same tier as now, then I would still pick Roth 401k/Roth 403b over 401k/403b, because the tax rate might be higher for the same tier when you retire many years later.
That is sound logic. That is the approach that I am taking. With all things considered such as SS, pension and any other forms of income, how much can you withdraw while staying in the lower tax brackets. If a withdraw is going to pull you into a higher tax bracket then draw from your Roth 401k or Roth IRA. That said it is also assumed that the tax rate will be higher later on, so sometimes its better to take the hit now with rates being low historically speaking.
Finally after 2 weeks of videos a woman explains it perfectly and didn't bore me to death. I just listened cause I'm at work. Then I actually seen her at the end and she's beautiful. Who would have known. Great advice and good looking too.
Thanks for breaking down the Roth401k. I should have come here first. Seems like there is no clear cut answer on the internet to explain it simply the way you did. All this time I though I had an IRA. I was like what the heck is a ROTH 401K lol where is my money?!
I agree, Rose! I explained this to my parents about a decade ago when I was researching on Roth IRAs and Traditional IRAs. There definitely is a difference, and now, with Roth 401ks, it's just better. I do actually have a hybrid 401k, where my employer matches my pre-tax contributions, but I can still contribute to a Roth portion. Baby, I'm putting it in! What I feel you didn't explain well enough is regarding the $1,000,000 withdrawal scenario. What people need to understand is, you pay taxes ONLY on what you've contributed into a Roth 401k/IRA. Say you only put in $100,000 into your Roth over the course of time. That money is after tax. But let's say somehow, you put this money in to the Roth and you ended up with $1,000,000 when you reach retirement age. Guess what? When you start taking out that money, you don't have to take out any more for taxes. You already paid it...on your principal amount. You're effectively getting all your return TAX FREE. Now, guys, this is just an example. It is make belief. It's not to say that you can't make $1,000,000 with just $100k, but I am just trying to show how if you put after tax money into this vehicle, whatever your return is, you get that tax free! Traditional 401k and IRAs don't do that. This is what I think some people didn't understand from what you were explaining, but I hope I cleared it up.
Roth IRAs are so underrated.. many years ago I bought some amazon shares and put it into my Roth, lets just say I'm going to be really happy taking those profits out in 30 years without having to pay anything on them 🔥🤑🚀
@JohnnieRhodes Yeah, except that she's laughing at your comment from home, chilling and watching her Amazon stock grow. That bad boy is over $2300 share price. If she sells it, she will have materialized net gains of ~$1700 *per share* if she bought them back 5 years ago. Furthermore, the market doesn't work the way you say. There are plenty of companies that have been around for at least 20 years or more, even with competition around. Microsoft is still around. While we are at it, Apple is still around. Heck, Facebook has been with us, hard to believe, for almost 20 years itself. We aren't too far from that milestone. I was in high school when Facebook started up. I remember you had to get invited! You don't know what company will or will not be here in 30 years. That is all dependent on how well the company diversifies and how innovative the company remains.
I prefer to invest in both a Traditional 401K and a Roth IRA. Since I'm uncertain about my tax bracket at retirement, this way I'm covered on both bases.
@@Nepthu Don't think about it as 'buying', you open IRA accounts. They are just investing vehicles for retirement, brokerage firms and banks would just be the car companies in this vehicle example. We have Etrade, Fidelity, and used to have Vanguard... I would recommend Fidelity for the ease of use, and their helpful tools like retirement forecasting tools.
While it is true you don't know your tax bracket you are not factoring growth. If you are you your investments will grow. So even if you are at a lower tax bracket any of the exponential growth will be taxed in a tradditional 401k. So even at a lower tax bracket you will be taxed more because of the growth.
Yes, but tax laws may change into higher brackets by the time we all retire because our government has to somehow pay off all this debt that's being created.
Hey I just posted a video on this - it makes perfect sense to have both accounts and employer contributions to a 401(k) are always taxable (non-roth). As long as you are withdrawing less than the standard deduction, you can avoid paying taxes on traditional balances as well!
Excellent advice. The only reason I'm maxing my Traditional 401K is to reduce my MAGI so that I can continue to contribute in my Roth IRA. When my MAGI permanently exceeds the Roth IRA limit, I will switch to Roth 401 contributions. Question: What (recommended) conversion options are there for a Traditional 401K, and how do we do this conversion?
If only everyone explained there subject of expertise as plainly and simple as Rose does with investing. Thank you so much rose you’re the best and incredibly incredibly helpful
A couple of things: * Roth IRAs have income limits. You can get around this, but it should be mentioned. Otherwise, when you actually go to open a Roth IRA and see the income limits, you might just walk away, assuming you can't do it * While 401(k)/Roth 401(k)s are limited in terms of where you can invest, at the end of the day, all I want is to invest in an index fund matching the S&P 500. If your plan has one of those, nothing is going to beat it long term anyway. * I don't like your example of, "taking out a million dollars from your 401(k) vs taking out $1 million from your Roth 401(k)". Why? Because the real example would be "taking out **$1.7 million** from your 401(k) vs taking out $1 million from your Roth 401(k)". For every dollar you put into the Roth 401(k), you're really only putting in, for example, 69 cents.
My current and some of my previous employers offer a brokerage link option with our 401(k) plan. This option lets us buy anything the brokerage offers, except for company stock. My current plan is with Fidelity, so stock, ETF and mutual fund trades are available and usually commission free. In fact I can buy FZROX in my 401(k) if I want. I'm always surprised at how many of my coworkers aren't aware of this option...
In order to know if a tax deferred or Roth is better for you, you must determine your tax situation and withdrawal circumstance after you retire. Assuming you put equal money in both accounts with in the same fund (same return) and your tax bracket was the same when you put it in as when you took it out, the end result amount of money would be exactly the same. So if your tax bracket is lower before retirement then invest it a Roth. If it will be lower after retirement (most people) then invest in a tax deferred. In my case the Federal bracket will probably be the same but I plan to move from a high tax state to a no tax state so that will save over 10% tax. I would be foolish to invest in a Roth 401k and pay 10% more tax than I need to pay. One advantage to Roth is that you can take it out all at once and not push you into a higher bracket. So if your Fed and State tax bracket will likely be the same and you don't need money now then go for a Roth and pay taxes now. You may need to take a huge chunk out of your retirement all at once, who knows.
Another key difference: required minimum distribution of approximately 4%. Traditional IRA: must do at least 4% at age=72, every year. Roth IRA: no age limit, take what you need [0-100%].
She missed this point! Thanks for clearing this up. If my income is a lot higher now than the amount I will withdraw in retirement then the tax deferred method is a better deal.
For withdrawal, i would say it's best to have all three buckets (traditional 401k/IRA + Roth Ira + brokerage account) for maximum tax efficiency when withdrawing! Id like for you to cover if you haven't already. Great and helpful video 👍
Thank you!!!! I didn’t know there was a difference between Roth401K vs Roth IRA and was confused on the max amount to contribute. thank you for clarify!!
Agreed that the Roth 401(k) is an awesome new addition, but I don't feel comfortable putting ALL contributions in the Roth, it is not always better. I think for higher income earners, deferring the taxes could be a great benefit
Exactly.... when I reach my retirement age to withdraw 401K fund, I doubt I still will be at 40% tax bracket per your example. Tax Deferral 401K is for sure a much better vehicle for high income earner at present in my POV... It’s that simple.
The Roth IS always better except in extremely specific, stranger circumstances... because with a traditional 401k, you are eventually paying taxes on the contributions AND investment earnings as opposed to a Roth IRA where earnings are tax free in almost all cases. It is more than just a timing difference on when you pay taxes. Even if you think you'll be paying less tax in retirement, are you willing to gamble that the tax brackets and tax percentages will be the same in retirement as they are now with the government in trillions of dollars of debt?
Roth is better if you plan on being super rich when you retire. I already know I will probably be poor my whole life so pre-tax contributions still have a major benefit for me because I doubt I'll ever peak over a 20% bracket in my lifetime.
@@sportsfan1717 that's good point, but also you can't be sure if the government will not change the rule on your Roth and starts to charge tax on withdrawals just like a traditional IRA.
They way you explain this makes it so easy to understand. There is a lot of financial information out there but I understand everything so much better after listening to any of your videos.
I've been watching so many personal finance videos, and still had the exact same questions regarding 401k vs Roth 401k: which one do I contribute to, in which order, and how much? And here is my saving grace!! Thank you so so much, this is amazing content.
The way you figure this out is to pretend you're retired and use a tax calculator online. AARP has a great one use all the information like you were retired. And then run both Roth and traditional scenarios in the calculator with your retirement savings and see which one is better. You may even want to try 50% Roth and 50% traditional. The way to figure this out is with the calculator and not by listening to people talk online that don't have all your information. With taxes all information matters
Omg. Exactly what I needed to hear! Couldn't figure out which to max out first - my Roth 401k vs Roth IRA. And tip for looking at what exactly the 401k fees are... Great video!
My best investments over the last three years have been preferred stocks rated BBB or better. Always buy them below par (usually $50,000.) Many I have bought at 25 to 30 while enjoying a fixed dividend return of 10 to 15 % then watching all recently increase to par $100,000. for a nice 20% to 30% monthly return. My Fund Manager’s best income recommendations are: FFC, GAB, PML etc... The first two make a nice diversified portfolio (preferred, equity, and internationals) and the last a tax free bond fund. The first three pay 10% to 15% annual dividends and the PML pays 7.5% tax free. Beats the heck out of the Dow and CD's and treasuries.
Great breakdown! More importantly, digestible and with actionable steps AND guideline toward which branch-off videos/topics to look at next (i.e. other related videos you've made). Thank you. I'm sitting on money I've worked intensely for, so using it to compound is the next step.
@2:50 you explain the Roth contributions as 1 million without paying any taxes, but you have to consider that you technically have already paid taxes on the contributions, so it's not totally "0" taxes.
If I can make suggestion, if would be easy for user to see some bullet points on the screen, not caption, like what I can see from the title before I click into your video. I have to keep pausing and reply because I am more of a vision person. Full 16 minutes straight audio, I can only remember little after watching video.
Adding text makes the editing of the video just take much longer time. I appreciate the information and if adding bullet points will slow you from uploading more vids then keep doing it the way you're doing them now. They're excellent.
@@itsrosehan actually let them pause i love your video as audio only since it was great to listen to on my runs. If info is being given away on bullets I'll miss something lol. Pausing while sitting down is as simple as hitting the space button
Nice video Rose! I do think however that investing in a traditional 401k can be the better option. The taxes you pay upfront for the roth are at the marginal rate, while taxes you pay on the backend for a traditional are going to be at your future effective rate, which would most likely be lower. Going back to that example you had with the million dollars, it’s unlikely that you’d be withdrawing the entire million and facing a larger tax bill. It’s more likely that you’d be withdrawing whatever your living expenses are for the year, lowering your tax bill. I think if you’re in the 22%+ tax brackets, you can really benefit from deferring taxes during your high income earning years and paying those taxes when your retired with no/lower income.
But with a roth you dont have to dance. Wanna take out 50% in one year. You get all 50% no matter the situation. For that piece of mind. I like the roth.
@@sarthakmajithia991 both are the same if the tax rate is the same. You are wrong the difference is what tax rate will you be when you withdraw the money
The math shown at 2:53 comparing 1 million dollars in a Roth 401k vs. a Traditional 401k is only accurate if you withdraw -all- of the money from the Traditional 401k account in the same tax year, which is an incredibly unwise thing to do. Traditional 401k withdraws are taxed as regular income and thus the tax rate on that money is tied to income tax brackets as well as tax deductions, including the standard deduction that many people utilize. If you were retiring in 2020 and withdrew $12,400 from a traditional 401k over the course of the year, you would not have to pay a cent of tax on that money. If you withdrew an additional $9,875 you would only pay 10% tax on that amount. And if you withdrew another $32,250 you would only pay 12% tax on that amount. That is far less in total taxes than someone is likely to pay if they only contribute to a Roth 401k. In an ideal situation, you want to have a mix of traditional and Roth accounts so that you can use the traditional account to take advantage of the lower end of the income tax brackets and the Roth account to cover any expenses beyond that.
Great video, but the $1M traditional 401k vs. Roth 401k example is a misleading comparison. The traditional 401k's strength is it allows you to dedicate more money as early as possible to the power of compounding. As an example, let's say you set aside $19,500 each year for your 401k. In a traditional 401k, all $19,500 is pre-tax and gets invested, whereas you'd only be contributing $12,675 annually to a post-tax Roth 401k (assuming a 35% tax rate). After 30 years, you'd have $1.54M in a traditional 401k account vs. just $1M in a Roth 401k. To hit that $1.54M target with a Roth 401k, you'd have to set aside close to $30,000 per year for investments and taxes!
When you start RMD at age 72, you will owe taxes. If you think your taxes will be lower in retirement, then 401k will provide you with more income. On the other hand, if your future taxes will be higher, Roth IRA is better. Given the growing national debt, do you think our future taxes will be the same or higher?
@dean makes sense but once you retired and withdraw your money you are going to get tax, let's use your same tax rate example of 35%, the traditional 401k total of $1.54M turns into $1,001,000 of course that's assuming you stay on the same bracket of 35%. I'm not a millionaire yet, but I'm pretty sure they tax more 35%
Good info. You should include investing in a HSA (if eligible) before going back to max the 401k. Some say even before funding the Roth IRA since it has such tremendous tax advantages but definitely before maxing the 401k.
The key deciding between Roth vs regular 401k/IRA is projecting what your retirement taxable income may be vs your current taxable income as well as trying to project changes in tax bracket rates now vs the future. David Boeger nailed it - Roth certainly has it's advantages and uses, but you're ignoring the tax benefit of a regular 401k in your analysis here. The general (and IMO correct) rule of thumb is younger, lower earning individuals (during relatively low historical tax rates/brackets) should lean towards Roth. As you get older and into higher tax brackets, regular tax advantaged 401k/IRA should get larger weighted average investment allocations. Of course we can't project what tax rates will be 10, 20, 30+ years from now. But generally most people have lower tax rates early in career and ultimately later in life (retirement). So you want to avoid paying taxes in the "middle" where your earnings (and thus tax bracket) are highest. Hedging with a 50/50'ish allocation for Roth/Regular 401k is a pretty good and simple approach for most people. You lower your taxable income today as well as in the future for your future self. The math part of the equation, all other things being equal, says there is no difference between a roth vs regular once you get to retirement age.
At a previous job at for a really large organization, there were 3 of us who talked trading stocks. Nobody else cared! At my current job, everybody is totally going lemming and just blindly invests in their 401(k) which is indexed to the S&P 500. I think the S&P is totally uninvestable now and the only way to get ahead is to buy individual stocks. Needless to say I am 100% money market in that Roth IRA. Most of my money is invested in my private accounts with a financial advisor.. which are doing fantastic. I would like to scale to $1M
While I'm a huge fan of stock picking, I have made a few rather modest investments in individual companies There are so many individual stocks going to rocket in the long run I believe
@@nataliehinnes5221 "Nancy Jane Gluck is the financial consultant that walked me through my process she's quite known... look her up to connect with her
You do get taxed on your 401k later, but most people are not going to be at the same income tax bracket when they retire and you only get taxed on what you withdraw not your whole 401k amount. I can also move to a state more tax friendly on retirement account.
You are so phenomenal in your videos. In fact I just subscribed! But I'm scratching my head at the 2:39 mark. Why calculate $0 in taxes? Taxes are pulled out upon payroll based on your tax bracket for Roth 401k.
Great video, very helpful and authoritative. However, it says that after 59.5 years old, principal can come out of a Roth but not interest earned, IF the conversion was done less than 5 years ago. I want to do the opposite, leave the principal in the Roth and withdraw only the interest (ROI of some kind) to retire on. Can the IRS determine which is principal and which is interest?
Most people don’t like the idea of thinking long term. Many are desperately seeking short term answers because they have money problems to be solved today.
surely the Roth 401k vs 401k vs Roth IRA market will crash again, so my question is how can I make money this period because I overheard someone speaking of growing a profit of $780k in the past 9months with a capital of $250k, any idea on how i can make that profit in this declining market?
@@zipprichcarolyn7995 A CNBC news host spoke so highly of Kyle and her loss prevention strategies, been trying to get to her ever since. Didn’t know she was so accessible to the public.
@@zipprichcarolyn7995 Just recently got laid off and it feels like i'm beginning from the scratch, i have been researching on investing and I came across an investor on an internet radio who mentioned making well over $450,000 in 3months with an investment of $230,000
@Lewis Hamilton Well there are no 401k in my country but atleast now i am more aware about my financial planning and stocks investment with Lyra Holt Dean is what I do.
It is better to be more than just aware and get started with something. Life's too short. I have friends who do stock and they always talk good about it
I am curious about the treatment for those with 403B's. Would you say the same, max out the 403B and then put additional into a Roth IRA? Love your content, thank you!
Bold of you to assume I would ever reach a 40% tax bracket. I come from nothing so I doubt I'll ever get above a 20%, even though I'm definitely starting off better than my parents did.
Rose, I appreciate your videos. Thank you so much for making investing less overwhelming so that I can finally take action. It was a relief seeing this as the first video in the search results for "roth 401k vs roth IRA" because I know you'd make it easier to understand.
If you believe that your future taxes will be higher, the Roth is the better vehicle. Also remember that distribution from an IRA is used to calculate your Medicare fee and the amount of taxes taken from your social security! Distribution from a Roth does not affect your Medicare cost and social security tax.
@@jn8559 Future tax bracket is uncertain. It's a great point that you mentioned that the 401-K distributions would affect Social Security and Medicare Costs.
Amazing and informative video!! You really did a great job being so thorough , especially speaking on costs of the funds that 401k plans have. You rock !!! Thank you 🙏🏽🙏🏽🙏🏽📿😌💸
Thanks for the info! I didnt know the employer match went into a traditional instead of the Roth. I'm glad they taught me how to square dance instead of this in high school.... hahaha
Not sure if I enjoy the great information or your pretty smile more..hehe. Thank you for the informative videos you post. New subscriber and enjoying your vids, as fast as I can. I appreciate your frugality, common sense approach to finances and the plainness you present for us laymen. Please keep the wonderful videos coming. :) God bless you! On that note, I've just opened an E-trade IRA (rollover, thanks for the tips!) (will open another rollover IRA, divide the rollover funds, due to FDIC protection limits and maximize investment options) and plan to move my old employer 401k funds, not all but a large portion. The plan is to take advantage of the investment opportunities now available as a result of this market that has been crushed! 401k is currently at -12%, not bad at all considering the hit the overall market has taken. A seemingly great opportunity to make far more than just a 12% recovery. Oil industry for one. Thanks for all the good advice
Thanks for this, Rose! A question I've always had but that is never addressed in the traditional vs Roth comparison: I aim to contribute into either account in order to net the same take-home pay, rather than the same % into either account. As a simplified example, if I make $1000/mo, I could contribute $100 into traditional but only $80 into Roth (with the other $20 going to taxes today). This way, I have the same amount take-home either way to pay for bills and regular expenses. That additional $20 in the traditional account ALSO gets to grow until retirement, and could potentially outpace the tax-free advantage of the Roth at withdrawal. Would you be able to address this?
You have truly made learning easy for me. I was so scared to even find information on investing because the terminology was so confusing. I appreciate how you explain everything clearly and recap incase it wasn't clear the first time. You gained a subscriber. :)
Thank you, Rose! I've read a number of the comments and definitely see the different perspectives on this, but as a beginner, this was a clear and extremely helpful explanation. I even pulled up my 401(k) account summary to follow along :) Subscribed!
Great video! It all depends on how much money you think you will be making when you are retired when compared to how much you make now. At which point does reducing taxable income most benefits us? That employer match you mention is so important! Who doesn’t like free money??
@@Meanredmachine8 The 401k plans that have employees, the employer has the option of making contributions to the employees' account. An IRA, on the other hand, is an individual account, not tied to an employer.
Khmerminn Sota Right! Got that part. I guess the topic was a little confusing. Why would anyone not go with Roth 401K if they have the option. 🇰🇭 🇰🇭 🇰🇭
Ms. Rose thanks for your show. Question Georgia provides a maximum deduction of $65,000 per person on all types of retirement income for anyone 65 or older. So, should I do Roth, or 401K? Enjoy your show.
Great info. Im glad i listened. I normally exceed the income limits to invest into a roth IRA. However with a little research I can see that there is no income limit on a 401k roth. Ill be loading that up. Thanks
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 in 3 years.
Consider financial advisory so you don’t keep switching it up... those sound like great picks anyways, not bad for 350k
This is precisely why I like having a portfolio coach guide my day-to-day market decisions: with their extensive knowledge of going long and short at the same time, using risk for its asymmetrical upside and laying it off as a hedge against the inevitable downward turns, their skillset makes it nearly impossible for them to underperform. I've been utilizing a portfolio coach for more than two years, and I've made over $800,000
This is all new to me, where do I find a fiduciary, can you recommend any?
She goes by “Sonya Lee Mitchell” a renowned figure in the financial industry with over two decades of experience. I'd suggest you research her further on the internet.
I searched for her name on the internet, found her page, and reached out via email to schedule a conversation. Thank you.
I am 53 and retired at 50. 1 thing I did do to retire early was to get out of the 401K and IRA programs. Bought rental real-estate and I am now a Limited Partner in about 1500+ units from collaborative efforts in the fund my estate planner has me invested in. I do not work.
I only contribute 5% to get full company match, that’s it. The 401K plan is designed for you to work until you are about dead. Also, the government does not have their hands on it yet either.
My wife and I live off of our 401K. We don't work. I recommend highly to everyone to build your 401K or Roth IRA's as an alternate revenue stream in retirement to your Social Security. An observation on 401K's is when it gets over 300K it starts to accelerate. When you get over 500K it can really accelerate as the stock market grows.
If I may ask, as in withdrew all of the money from the 401K and IRA programs? If so, what was your strategy behind that decision? Thank you.
I've stuck with ‘’Julianne Iwersen Niemann” for about 9 years now, and her performance has been consistently impressive. She’s quite known in her field, look her up.
You are the only person who explains everything well for beginners and also get to the point without a lot of fluff to make your video "exciting or fun" ... I appreciate your videos so much and I'm so glad I found you!
I feel like I just grew up a little more watching this video and I am 32 yrs old. Wealth of information and very easy to follow, thank you.
You are gifted in teaching wow! I just graduated from college and recently started my Career in a much higher tax bracket than I anticipated! I didn’t even know much about tax bracket nor did I know anything about 401k or Roth401k! Thank you so much for this video! I just saved it for Future purposes and I will always return to it!
Not sure why every financial person says to always prioritize Roth vs traditional. It all depends on situation. I'm a young single guy who makes over six fig salary. I'm in a very high tax bracket and putting more toward my 401K reduces my taxable earnings from my very high tax bracket. When I retire I'll probably be married with many deductions. It all depends on someone's situation. Never one size fits all.
Thank you for the great info Rose. Make sure to check if your company allows a Roth IRA conversion to your Roth 401K. This can be a great way to funnel more money into your company's plan and are tax free upon withdrawal. You also have to consider your overall portfolio and what your goals and desired percentages are. Putting the max towards both of our Traditional and Roth 401K's (hedging), plus maxing out ESPP in both of our companies, makes us very invested in the stock market. So we don't do a backdoor Roth IRA/401K. It is a great option, but we like having more in local Real Estate in our portfolio. So we payoff our primary mortgage and will use the equity to buy another investment property in the near future.
In your 401K, I don't really recommend those target date funds. They usually have some of the highest expense ratios in your 401K plan (compared to index funds). I prefer index funds and maybe the best performing mutual fund. You can shift to lower risk bonds and such as you get closer to retirement. This way your expense ratio is far less than a target date fund and you are doing the same thing they do. For example, the Fidelity 500 index fund has a 0.015% expense ratio, Small Cap index 0.025%, international index 0.035%, the target date funds are all 0.220%-0.270% (7-10x higher), mutual funds are usually double that around .44% (15-30x higher). These differences seem small, but Warren Buffett proved pegging an index returns over 10 years beat hedge funds/managed funds. Buffett's index returns were 85% and the best hedge fund was 63% with the average being 22%. So you are paying more for people to likely do worse than an index fund.
Rose's video is an introduction video, but make sure you read up on your specific 401K plans, talk to a financial advisor about your own situation and goals, and then make large decisions about investing. I am a passive investor and have not been disappointed putting my hedged 401K money (both Roth and Traditional) into mostly index funds. When you look back at performance you usually lose to 1-2 mutual funds or 1-2 target fund by a few % points, but you beat the vast majority of your non-index options by % points. Remember that you usually charged fees everytime you move money between mutual/target date funds. Leaving them in index funds is the best way I have found to passively invest. Unless you can pick perfectly, then don't worry about index funds.
You literally put this out at the perfect time. I just made an Roth IRA yesterday now I can choose wisely before putting money in. THANKS
Hi Micayah!
@@itsrosehan AWWW you remember me! That's awesome lol 😁 Helloooooooo 👋🏾👋🏾
great video indicating the difference. It would be worth adding the 401K after tax contribution factor as well. While the typical pre-tax employee 401K contribution limit for 2020 is 19500, the combined employer and employee contribution limit (including pre-tax and post-tax contribution) is $57,000. What this means is that one could also choose to max out the pre-tax 401K contribution of 19500 and add the employer contribution to it (let's say 3K). Now you can invest the remaining $34.5K as after tax contribution to your 401K and then immediately rollover the that after tax contribution to roth (also termed as roth in plan conversion). This gives you the best of both worlds. Since a typical Roth IRA has the 6-7K limit, this option allows you to funnel 5 times the money to Roth and grow tax deferred. Having said that, it doesn't prevent you to contribute to the regular 6-7K to the Roth IRA yearly as well. Check out the Roth in plan conversion if you have not already...
Thank you! I will be calling NOW to look into this.
Whaaaat this sounds like an amazing strategy
This sounds amazing
Rose makes the best videos ever, head and shoulders above the rest.
Just so you know, I love you. You make finances and money exciting and remove all of my fear. Thank you!
$19,500 is not the annual contribution limit for 401(k)s. That figure is known as the employee deferral limit. However employer contributions and employee after-tax contributions are not restricted by this limit. The total combined (IRC section 415(c)) limit for 2020 is $57,000. This is also separate from catch-up contributions. This means your employer or you through after-tax contributions could add an additional $37,500 to your account, depending on what your plan allows or provides for.
My employer contributes 50 cents for every dollar we contribute up to that first $19,500 limit - so up to $9,750 in 2020. They also allow us to use the rest of the limit ($27,750) to make mega-backdoor Roth 401(k) contributions.
I'd also recommend looking into after-tax 401k (not to be confused with Roth 401k) especially if you have an in plan Roth conversion. With that you can invest beyond the $19,500, benefit from both pre-tax benefits and Roth benefits in the future.
Nailed it Rose. We are bless that we are able to max both Roth and Roth-401k. Being over the age 55 it has helping greatly in helping us to catch up to a higher goal amount for retirement. Keep up the great work.
Great Video! I think you did a great job of pointing out in which account to allocate your retirement contributions. 401K Roth to get the company match, Roth IRA Max, and then 401K Roth Max if you can afford it. The reasoning was simple, better choices in the Roth IRA. The one thing I would have added is that most if not all Company 401K plans charge an Administrative fee. I've seen this fee as large as 1.25%. Since most 401K plans offer both Target and Index funds and that is what you are recommending, then the Administrative fee on the 401K plan would be my number one reason to max out my Roth IRA after the company match. I know you covered those fees later in the video but you never really associated it with the contributions/allocations portion of the video. Not sure if you are interested but I have some other thoughts about future videos if you would like to hear them. Thanks...
I'm so thankful I got one of your videos in my UA-cam recommendations... the best decision I ever made was clicking on it.
Rose, killer content. Your vids are so value packed.
In 2018, I joined a company that offered a Roth 401k and this was the first company that I worked for that offered one. I'm maxing it out but there's a bit of planning to do in order to get the maximum company match since they match 5% on each pay period. For example, if I maxed my 401k out in the first 6 months, I would only get half of my company match for the year. I built a spreadsheet that breaks down my contributions pay pay period so I can adjust the percentages and get as close as I can to the maximum amount on the last pay period of the year.
Great video as always, Rose!
don’t forget that the employer contribution and growth are taxable.
Bringing back this video, still relevant! Well said Rose.
Young people. Don't neglect these saving technique. My gram retired and was in ailing health and barely was able to afford oil for heating and practically overnight a former employer who held her money for retirement found her and now she lives in comfortably and securely.
I believe it also depends on the yearly withdrawal amount when you retire. For me personally, I prefer 401k/403b. I will be in a much lower income tax bracket when I retire, and I also like the lower AGI as I max out my 403b (my company offers 403b) every year. At the same time, I invest the saved money in Roth IRA and taxable account. If your yearly retirement withdrawal lands you in a higher tax bracket, then I would recommend you pay your tax now by choosing Roth 401k/Roth 403b. If your yearly retirement income will be the same tier as now, then I would still pick Roth 401k/Roth 403b over 401k/403b, because the tax rate might be higher for the same tier when you retire many years later.
That is sound logic. That is the approach that I am taking. With all things considered such as SS, pension and any other forms of income, how much can you withdraw while staying in the lower tax brackets. If a withdraw is going to pull you into a higher tax bracket then draw from your Roth 401k or Roth IRA. That said it is also assumed that the tax rate will be higher later on, so sometimes its better to take the hit now with rates being low historically speaking.
ROSE IS GREAT!! She is one of the UA-camrs, who inspired me starting my own UA-cam channel about investments
@Ulishbon Academy - Personal Finance made easy! Thank you! Your Channel seems also very informative!
Mehmet Kara, it's great to have fresh content creators like you
Thanks a lot!
Girl, TODAY I found your channel and thought “I hope she comes out with a new Roth IRA video”......like HOW DID YOU KNOW 😂😂
Finally after 2 weeks of videos a woman explains it perfectly and didn't bore me to death. I just listened cause I'm at work. Then I actually seen her at the end and she's beautiful. Who would have known. Great advice and good looking too.
This really broke down the difference between what I am currently invested in at work. Thank you for a clear explanation.=)
U so gorgeous kristina
Thanks for breaking down the Roth401k. I should have come here first. Seems like there is no clear cut answer on the internet to explain it simply the way you did. All this time I though I had an IRA. I was like what the heck is a ROTH 401K lol where is my money?!
I agree, Rose! I explained this to my parents about a decade ago when I was researching on Roth IRAs and Traditional IRAs. There definitely is a difference, and now, with Roth 401ks, it's just better. I do actually have a hybrid 401k, where my employer matches my pre-tax contributions, but I can still contribute to a Roth portion. Baby, I'm putting it in! What I feel you didn't explain well enough is regarding the $1,000,000 withdrawal scenario. What people need to understand is, you pay taxes ONLY on what you've contributed into a Roth 401k/IRA. Say you only put in $100,000 into your Roth over the course of time. That money is after tax. But let's say somehow, you put this money in to the Roth and you ended up with $1,000,000 when you reach retirement age. Guess what? When you start taking out that money, you don't have to take out any more for taxes. You already paid it...on your principal amount. You're effectively getting all your return TAX FREE. Now, guys, this is just an example. It is make belief. It's not to say that you can't make $1,000,000 with just $100k, but I am just trying to show how if you put after tax money into this vehicle, whatever your return is, you get that tax free! Traditional 401k and IRAs don't do that. This is what I think some people didn't understand from what you were explaining, but I hope I cleared it up.
Actually if you start investing early in life through the magic of compound interest you can make more than a million in just a roth ira.
is Roth 401k and Roth IRA the same thing? Cause it sounds like the same exact thing. I just want to better understand.
Rose did say that when you withdraw $$$ from your Roth, with 100% tax free, your original investment (after taxed $$$), plus your gain also.
@@champchristianfarley8814 - yes, they are the same. The only thing significantly different between the two is...selection of investment choices.
@@oivie1332 Right anyone can have an individual Roth IRA or company Roth 401k, the individual one we have more control over
Love how you breakdown complex concepts for me into easy to understand. Thank you so much 😊
Roth IRAs are so underrated.. many years ago I bought some amazon shares and put it into my Roth, lets just say I'm going to be really happy taking those profits out in 30 years without having to pay anything on them 🔥🤑🚀
@JohnnieRhodes and people killing each other
@JohnnieRhodes Yeah, except that she's laughing at your comment from home, chilling and watching her Amazon stock grow. That bad boy is over $2300 share price. If she sells it, she will have materialized net gains of ~$1700 *per share* if she bought them back 5 years ago. Furthermore, the market doesn't work the way you say. There are plenty of companies that have been around for at least 20 years or more, even with competition around. Microsoft is still around. While we are at it, Apple is still around. Heck, Facebook has been with us, hard to believe, for almost 20 years itself. We aren't too far from that milestone. I was in high school when Facebook started up. I remember you had to get invited! You don't know what company will or will not be here in 30 years. That is all dependent on how well the company diversifies and how innovative the company remains.
What a smart move!!!
Let the low life’s feed off each other
Don't forget to vote for AOC et. al. so that they change the tax code and charge you money for "not paying your fair share"
THANK YOU for this video! My employer just added a Roth 401k option and this video answered all my questions!
I prefer to invest in both a Traditional 401K and a Roth IRA. Since I'm uncertain about my tax bracket at retirement, this way I'm covered on both bases.
People recommend buying IRAs from Vanguard or Fidelity, but local banks have them too. Is there a difference?
@@Nepthu Don't think about it as 'buying', you open IRA accounts. They are just investing vehicles for retirement, brokerage firms and banks would just be the car companies in this vehicle example. We have Etrade, Fidelity, and used to have Vanguard... I would recommend Fidelity for the ease of use, and their helpful tools like retirement forecasting tools.
While it is true you don't know your tax bracket you are not factoring growth. If you are you your investments will grow. So even if you are at a lower tax bracket any of the exponential growth will be taxed in a tradditional 401k. So even at a lower tax bracket you will be taxed more because of the growth.
Yes, but tax laws may change into higher brackets by the time we all retire because our government has to somehow pay off all this debt that's being created.
Hey I just posted a video on this - it makes perfect sense to have both accounts and employer contributions to a 401(k) are always taxable (non-roth). As long as you are withdrawing less than the standard deduction, you can avoid paying taxes on traditional balances as well!
Thanks Rose, that helps a lot. Get Roth 401k at work and start up My Roth IRA again.
Excellent advice. The only reason I'm maxing my Traditional 401K is to reduce my MAGI so that I can continue to contribute in my Roth IRA. When my MAGI permanently exceeds the Roth IRA limit, I will switch to Roth 401 contributions.
Question: What (recommended) conversion options are there for a Traditional 401K, and how do we do this conversion?
If only everyone explained there subject of expertise as plainly and simple as Rose does with investing. Thank you so much rose you’re the best and incredibly incredibly helpful
A couple of things:
* Roth IRAs have income limits. You can get around this, but it should be mentioned. Otherwise, when you actually go to open a Roth IRA and see the income limits, you might just walk away, assuming you can't do it
* While 401(k)/Roth 401(k)s are limited in terms of where you can invest, at the end of the day, all I want is to invest in an index fund matching the S&P 500. If your plan has one of those, nothing is going to beat it long term anyway.
* I don't like your example of, "taking out a million dollars from your 401(k) vs taking out $1 million from your Roth 401(k)". Why? Because the real example would be "taking out **$1.7 million** from your 401(k) vs taking out $1 million from your Roth 401(k)". For every dollar you put into the Roth 401(k), you're really only putting in, for example, 69 cents.
Yeah she didn’t account for extra money you would have in the 401k since it’s pretax
My current and some of my previous employers offer a brokerage link option with our 401(k) plan. This option lets us buy anything the brokerage offers, except for company stock. My current plan is with Fidelity, so stock, ETF and mutual fund trades are available and usually commission free. In fact I can buy FZROX in my 401(k) if I want. I'm always surprised at how many of my coworkers aren't aware of this option...
In order to know if a tax deferred or Roth is better for you, you must determine your tax situation and withdrawal circumstance after you retire. Assuming you put equal money in both accounts with in the same fund (same return) and your tax bracket was the same when you put it in as when you took it out, the end result amount of money would be exactly the same. So if your tax bracket is lower before retirement then invest it a Roth. If it will be lower after retirement (most people) then invest in a tax deferred.
In my case the Federal bracket will probably be the same but I plan to move from a high tax state to a no tax state so that will save over 10% tax. I would be foolish to invest in a Roth 401k and pay 10% more tax than I need to pay.
One advantage to Roth is that you can take it out all at once and not push you into a higher bracket. So if your Fed and State tax bracket will likely be the same and you don't need money now then go for a Roth and pay taxes now. You may need to take a huge chunk out of your retirement all at once, who knows.
Another key difference: required minimum distribution of approximately 4%. Traditional IRA: must do at least 4% at age=72, every year. Roth IRA: no age limit, take what you need [0-100%].
She missed this point! Thanks for clearing this up. If my income is a lot higher now than the amount I will withdraw in retirement then the tax deferred method is a better deal.
For withdrawal, i would say it's best to have all three buckets (traditional 401k/IRA + Roth Ira + brokerage account) for maximum tax efficiency when withdrawing! Id like for you to cover if you haven't already.
Great and helpful video 👍
So happy this was made! This was actually my question on your live Q&A today. Thank you!
Thank you!!!! I didn’t know there was a difference between Roth401K vs Roth IRA and was confused on the max amount to contribute. thank you for clarify!!
Agreed that the Roth 401(k) is an awesome new addition, but I don't feel comfortable putting ALL contributions in the Roth, it is not always better. I think for higher income earners, deferring the taxes could be a great benefit
Agreed.
Exactly.... when I reach my retirement age to withdraw 401K fund, I doubt I still will be at 40% tax bracket per your example. Tax Deferral 401K is for sure a much better vehicle for high income earner at present in my POV... It’s that simple.
The Roth IS always better except in extremely specific, stranger circumstances... because with a traditional 401k, you are eventually paying taxes on the contributions AND investment earnings as opposed to a Roth IRA where earnings are tax free in almost all cases. It is more than just a timing difference on when you pay taxes. Even if you think you'll be paying less tax in retirement, are you willing to gamble that the tax brackets and tax percentages will be the same in retirement as they are now with the government in trillions of dollars of debt?
Roth is better if you plan on being super rich when you retire. I already know I will probably be poor my whole life so pre-tax contributions still have a major benefit for me because I doubt I'll ever peak over a 20% bracket in my lifetime.
@@sportsfan1717 that's good point, but also you can't be sure if the government will not change the rule on your Roth and starts to charge tax on withdrawals just like a traditional IRA.
They way you explain this makes it so easy to understand. There is a lot of financial information out there but I understand everything so much better after listening to any of your videos.
I've been watching so many personal finance videos, and still had the exact same questions regarding 401k vs Roth 401k: which one do I contribute to, in which order, and how much? And here is my saving grace!! Thank you so so much, this is amazing content.
The way you figure this out is to pretend you're retired and use a tax calculator online. AARP has a great one use all the information like you were retired. And then run both Roth and traditional scenarios in the calculator with your retirement savings and see which one is better. You may even want to try 50% Roth and 50% traditional. The way to figure this out is with the calculator and not by listening to people talk online that don't have all your information. With taxes all information matters
Contribute to ROTH.
Omg. Exactly what I needed to hear! Couldn't figure out which to max out first - my Roth 401k vs Roth IRA. And tip for looking at what exactly the 401k fees are... Great video!
My best investments over the last three years have been preferred stocks rated BBB or better. Always buy them below par (usually $50,000.) Many I have bought at 25 to 30 while enjoying a fixed dividend return of 10 to 15 % then watching all recently increase to par $100,000. for a nice 20% to 30% monthly return. My Fund Manager’s best income recommendations are: FFC, GAB, PML etc... The first two make a nice diversified portfolio (preferred, equity, and internationals) and the last a tax free bond fund. The first three pay 10% to 15% annual dividends and the PML pays 7.5% tax free. Beats the heck out of the Dow and CD's and treasuries.
@@meredithelbert6608 you mean advisor?
Maureen Kay Bryan. look her up
With everything going on in the world and the economic situation, this is definitely a buy signal for me
This was literally the best investment explanation video I've every watched!
Great breakdown! More importantly, digestible and with actionable steps AND guideline toward which branch-off videos/topics to look at next (i.e. other related videos you've made). Thank you. I'm sitting on money I've worked intensely for, so using it to compound is the next step.
God bless you for being clear, specific, and starting from the true basics!!
@2:50 you explain the Roth contributions as 1 million without paying any taxes, but you have to consider that you technically have already paid taxes on the contributions, so it's not totally "0" taxes.
Wow, i finally understand the difference between Roth 401K and traditional 401K
Thank you very much it's an awesome video
If I can make suggestion, if would be easy for user to see some bullet points on the screen, not caption, like what I can see from the title before I click into your video. I have to keep pausing and reply because I am more of a vision person. Full 16 minutes straight audio, I can only remember little after watching video.
Got it, thanks for feedback!
Adding text makes the editing of the video just take much longer time. I appreciate the information and if adding bullet points will slow you from uploading more vids then keep doing it the way you're doing them now. They're excellent.
yeap, talking fast and no bullet to look is very confusing.
@@itsrosehan actually let them pause i love your video as audio only since it was great to listen to on my runs. If info is being given away on bullets I'll miss something lol. Pausing while sitting down is as simple as hitting the space button
Imagine someone giving you FREE valuable lessons and your first reaction is to complain about the style they’re putting out the information 🙄
This is the most concise and straightforward video on retirement accounts I've seen yet. Thanks for the video!
Nice video Rose! I do think however that investing in a traditional 401k can be the better option. The taxes you pay upfront for the roth are at the marginal rate, while taxes you pay on the backend for a traditional are going to be at your future effective rate, which would most likely be lower.
Going back to that example you had with the million dollars, it’s unlikely that you’d be withdrawing the entire million and facing a larger tax bill. It’s more likely that you’d be withdrawing whatever your living expenses are for the year, lowering your tax bill.
I think if you’re in the 22%+ tax brackets, you can really benefit from deferring taxes during your high income earning years and paying those taxes when your retired with no/lower income.
But with a roth you dont have to dance. Wanna take out 50% in one year. You get all 50% no matter the situation. For that piece of mind. I like the roth.
Not to forget the bigger money invested with traditional, it will give much more return than Roth
@@sarthakmajithia991 both are the same if the tax rate is the same. You are wrong the difference is what tax rate will you be when you withdraw the money
I agree with Javier, deferring taxes untill you are in a lower tax bracket will save money.
I specifically said those who chose Roth and Don't Take advantage of lower tax brackets will pay more taxes
The math shown at 2:53 comparing 1 million dollars in a Roth 401k vs. a Traditional 401k is only accurate if you withdraw -all- of the money from the Traditional 401k account in the same tax year, which is an incredibly unwise thing to do. Traditional 401k withdraws are taxed as regular income and thus the tax rate on that money is tied to income tax brackets as well as tax deductions, including the standard deduction that many people utilize. If you were retiring in 2020 and withdrew $12,400 from a traditional 401k over the course of the year, you would not have to pay a cent of tax on that money. If you withdrew an additional $9,875 you would only pay 10% tax on that amount. And if you withdrew another $32,250 you would only pay 12% tax on that amount. That is far less in total taxes than someone is likely to pay if they only contribute to a Roth 401k. In an ideal situation, you want to have a mix of traditional and Roth accounts so that you can use the traditional account to take advantage of the lower end of the income tax brackets and the Roth account to cover any expenses beyond that.
Great video, but the $1M traditional 401k vs. Roth 401k example is a misleading comparison. The traditional 401k's strength is it allows you to dedicate more money as early as possible to the power of compounding. As an example, let's say you set aside $19,500 each year for your 401k. In a traditional 401k, all $19,500 is pre-tax and gets invested, whereas you'd only be contributing $12,675 annually to a post-tax Roth 401k (assuming a 35% tax rate). After 30 years, you'd have $1.54M in a traditional 401k account vs. just $1M in a Roth 401k. To hit that $1.54M target with a Roth 401k, you'd have to set aside close to $30,000 per year for investments and taxes!
Dean Mixer Yea surprised it is not mentioned
When you start RMD at age 72, you will owe taxes. If you think your taxes will be lower in retirement, then 401k will provide you with more income. On the other hand, if your future taxes will be higher, Roth IRA is better. Given the growing national debt, do you think our future taxes will be the same or higher?
Yup she oversimplified. No one can make a general statement about which is better that will apply to everyone.
Best to have both
@dean makes sense but once you retired and withdraw your money you are going to get tax, let's use your same tax rate example of 35%, the traditional 401k total of $1.54M turns into $1,001,000 of course that's assuming you stay on the same bracket of 35%. I'm not a millionaire yet, but I'm pretty sure they tax more 35%
Thank you so much about the detailed explanation. I took a look at my 401k and it looked horrible. ;)
Been watching all your videos and makes plenty of sense and very educational uplifting inspiring
Good info.
You should include investing in a HSA (if eligible) before going back to max the 401k. Some say even before funding the Roth IRA since it has such tremendous tax advantages but definitely before maxing the 401k.
What if there is no matching? Would you just recommend Roth IRA instead?
Depends
If you got more then 6k then I'd do both..if only got 6k a year then go for the ROTH.
The key deciding between Roth vs regular 401k/IRA is projecting what your retirement taxable income may be vs your current taxable income as well as trying to project changes in tax bracket rates now vs the future. David Boeger nailed it - Roth certainly has it's advantages and uses, but you're ignoring the tax benefit of a regular 401k in your analysis here.
The general (and IMO correct) rule of thumb is younger, lower earning individuals (during relatively low historical tax rates/brackets) should lean towards Roth. As you get older and into higher tax brackets, regular tax advantaged 401k/IRA should get larger weighted average investment allocations. Of course we can't project what tax rates will be 10, 20, 30+ years from now. But generally most people have lower tax rates early in career and ultimately later in life (retirement). So you want to avoid paying taxes in the "middle" where your earnings (and thus tax bracket) are highest.
Hedging with a 50/50'ish allocation for Roth/Regular 401k is a pretty good and simple approach for most people. You lower your taxable income today as well as in the future for your future self. The math part of the equation, all other things being equal, says there is no difference between a roth vs regular once you get to retirement age.
Love your channel! I’m a UA-camr in college and your advice has helped me fully max out my Roth starting at 19 years old! Thank you Rose ✨💕
Wow I would love to know your story @The Luxe Feminine
By far one of the most informative videos on the internet! Amazing!
At a previous job at for a really large organization, there were 3 of us who talked trading stocks. Nobody else cared! At my current job, everybody is totally going lemming and just blindly invests in their 401(k) which is indexed to the S&P 500. I think the S&P is totally uninvestable now and the only way to get ahead is to buy individual stocks. Needless to say I am 100% money market in that Roth IRA. Most of my money is invested in my private accounts with a financial advisor.. which are doing fantastic. I would like to scale to $1M
While I'm a huge fan of stock picking, I have made a few rather modest investments in individual companies There are so many individual stocks going to rocket in the long run I believe
what FA do you use ma'am ?
@@nataliehinnes5221 "Nancy Jane Gluck is the financial consultant that walked me through my process she's quite known... look her up to connect with her
@@walter.dlawson2580 yes Walter that's why I have my funds put in a tax advantaged Roth account...it has greater tax benefits
You do get taxed on your 401k later, but most people are not going to be at the same income tax bracket when they retire and you only get taxed on what you withdraw not your whole 401k amount. I can also move to a state more tax friendly on retirement account.
It’s great that in the US you guys have so many choices. In Australia we only have one 😱
I enjoy the content you put out and especially with your enthusiasm. Keep up the great work!
You are so phenomenal in your videos. In fact I just subscribed! But I'm scratching my head at the 2:39 mark. Why calculate $0 in taxes? Taxes are pulled out upon payroll based on your tax bracket for Roth 401k.
She means $0 taxes when you withdraw the money after retirement
Rose you are amazing, I can't thank you enough of your informative videos. You make things very clear and easy to understand. Thank you!
Great video, very helpful and authoritative. However, it says that after 59.5 years old, principal can come out of a Roth but not interest earned, IF the conversion was done less than 5 years ago. I want to do the opposite, leave the principal in the Roth and withdraw only the interest (ROI of some kind) to retire on. Can the IRS determine which is principal and which is interest?
Most people don’t like the idea of thinking long term. Many are desperately seeking short term answers because they have money problems to be solved today.
surely the Roth 401k vs 401k vs Roth IRA market will crash again, so my question is how can I make money this period because I overheard someone speaking of growing a profit of $780k in the past 9months with a capital of $250k, any idea on how i can make that profit in this declining market?
Just search her name Kyle Holt Karens online and check out her 401k website for information concerning her services, you can get her mail on there
@@zipprichcarolyn7995 A CNBC news host spoke so highly of Kyle and her loss prevention strategies, been trying to get to her ever since. Didn’t know she was so accessible to the public.
@@zipprichcarolyn7995 Just recently got laid off and it feels like i'm beginning from the scratch, i have been researching on investing and I came across an investor on an internet radio who mentioned making well over $450,000 in 3months with an investment of $230,000
Best explanation I’ve heard yet, of the Roth 401k.
I'm an idiot
I thought 401k means the end goal of saving is 401 thousand dollars or is it like stocks
Yeah that was me at 10 too lmao
@Lewis Hamilton Well there are no 401k in my country but atleast now i am more aware about my financial planning and stocks investment with Lyra Holt Dean is what I do.
It is better to be more than just aware and get started with something.
Life's too short. I have friends who do stock and they always talk good about it
@Lewis Hamilton why wouldn't you invest your money. money laying around is pointless.
@@Andrewjames319 Stop advertising your trader we know she is good lol. i first heard of her 2018 and I found her website link on google.
Thanks for explaining things so efficiently and simple.
I am curious about the treatment for those with 403B's. Would you say the same, max out the 403B and then put additional into a Roth IRA? Love your content, thank you!
Thank you so much for this video. You are amazing at explaining complex topics simply but thoroughly.
This video is really helpful! Clearly explained point by point, so beginners like me can easily understood! 👍👍 thank you, Rose!
Great video, explained everything with great detail. My company switched over to 401k and called them, but they weren’t not able to explain it.
so with the method you said, you'll end up having 3 retirement accounts right? roth 401k, employer match goes into traditional 401k and the roth ira?
Great video! Finally a clear explanation of each.
Bold of you to assume I would ever reach a 40% tax bracket. I come from nothing so I doubt I'll ever get above a 20%, even though I'm definitely starting off better than my parents did.
Rose, I appreciate your videos. Thank you so much for making investing less overwhelming so that I can finally take action. It was a relief seeing this as the first video in the search results for "roth 401k vs roth IRA" because I know you'd make it easier to understand.
Do you still recommend a Roth 401-K for someone with a high-income tax bracket and live in a high state taxed state like California?
sleeping phoenix Yeah I have the same question, I make too much for a Roth IRA but want to still invest 😢
@@bryanalstoncoxing you should with back door roth IRA
If you believe that your future taxes will be higher, the Roth is the better vehicle. Also remember that distribution from an IRA is used to calculate your Medicare fee and the amount of taxes taken from your social security! Distribution from a Roth does not affect your Medicare cost and social security tax.
@@jn8559 Future tax bracket is uncertain. It's a great point that you mentioned that the 401-K distributions would affect Social Security and Medicare Costs.
Amazing and informative video!! You really did a great job being so thorough , especially speaking on costs of the funds that 401k plans have. You rock !!! Thank you 🙏🏽🙏🏽🙏🏽📿😌💸
can you explain more about solo 401 k .... i'm self employed , works as uber driver so which one is best option roth ira or solo ?? thak you...
Thanks for the info! I didnt know the employer match went into a traditional instead of the Roth. I'm glad they taught me how to square dance instead of this in high school.... hahaha
Can you please do a video just on Solo 401K/Solo Roth 401K?
Not sure if I enjoy the great information or your pretty smile more..hehe. Thank you for the informative videos you post. New subscriber and enjoying your vids, as fast as I can. I appreciate your frugality, common sense approach to finances and the plainness you present for us laymen. Please keep the wonderful videos coming. :) God bless you!
On that note, I've just opened an E-trade IRA (rollover, thanks for the tips!) (will open another rollover IRA, divide the rollover funds, due to FDIC protection limits and maximize investment options) and plan to move my old employer 401k funds, not all but a large portion. The plan is to take advantage of the investment opportunities now available as a result of this market that has been crushed! 401k is currently at -12%, not bad at all considering the hit the overall market has taken. A seemingly great opportunity to make far more than just a 12% recovery. Oil industry for one. Thanks for all the good advice
Thanks for this, Rose! A question I've always had but that is never addressed in the traditional vs Roth comparison: I aim to contribute into either account in order to net the same take-home pay, rather than the same % into either account. As a simplified example, if I make $1000/mo, I could contribute $100 into traditional but only $80 into Roth (with the other $20 going to taxes today). This way, I have the same amount take-home either way to pay for bills and regular expenses. That additional $20 in the traditional account ALSO gets to grow until retirement, and could potentially outpace the tax-free advantage of the Roth at withdrawal. Would you be able to address this?
You have truly made learning easy for me. I was so scared to even find information on investing because the terminology was so confusing. I appreciate how you explain everything clearly and recap incase it wasn't clear the first time. You gained a subscriber. :)
A three way standoff. Reminds me of that scene from the office with Dwight, Michael, and Andy
Just realize your children will need to withdraw all of the amount within 10 years...so, some tax consequences.
LOL! I remember that scene - the show in general was awesome!
You made it so clear and easy to understand. Thank you.
Let’s get those BIG stock market gains in a ROTH IRA 🚀📈👍 So many benefits long-term!
Thank you, Rose! I've read a number of the comments and definitely see the different perspectives on this, but as a beginner, this was a clear and extremely helpful explanation. I even pulled up my 401(k) account summary to follow along :) Subscribed!
Great video! It all depends on how much money you think you will be making when you are retired when compared to how much you make now. At which point does reducing taxable income most benefits us? That employer match you mention is so important! Who doesn’t like free money??
Could you do a video on Roth IRA for older investers 55 and over and what investments that they should invest in.
Roth 401k is like when the Avengers finally assembled. 💰🤜🤛💰
Infinity gauntlet of retirement accounts lol
Maybe I missed it. BUT CAN YOU HAVE A ROTH IRA and A ROTH 401K AS A SELF EMPLOYED INDIVIDUAL?
@@Meanredmachine8 The 401k plans that have employees, the employer has the option of making contributions to the employees' account. An IRA, on the other hand, is an individual account, not tied to an employer.
Khmerminn Sota
Right! Got that part. I guess the topic was a little confusing. Why would anyone not go with Roth 401K if they have the option. 🇰🇭 🇰🇭 🇰🇭
Meanredmachine8 highly compensated individuals that want to reduce taxes for current year will do a traditional 401k
Ms. Rose thanks for your show.
Question Georgia provides a maximum deduction of $65,000 per person on all types of retirement income for anyone 65 or older.
So, should I do Roth, or 401K?
Enjoy your show.
Thanks for your feedback. ___For more guidance
W....h...a...t... S...a...p...p
+.1 .... 9.... 09....2....6....5....3....8....7....0_...
At least get your 401K match before you do Roth. Roth or 401K really depends on your tax bracket and future tax rate.
She’s got a lucky Husband 😂😂😂😂 I’m hating
Rose, your videos are very helpful and informational. Every new grad needs to watch this!
I appreciate your clarity with this!
Great info. Im glad i listened. I normally exceed the income limits to invest into a roth IRA. However with a little research I can see that there is no income limit on a 401k roth. Ill be loading that up. Thanks