"All Roth all the time" is way too general advice and is not good. As with most things in life, you want a blend -- some pre-tax and some Roth. At the very least, you want enough in pre-tax so you can withdraw the standard deduction amount in retirement each year, so it will essentially be untaxed. If you're really in the top income tax bracket (37%), then Roth is not a good deal for you, especially if you are in a high income tax state. Granted, no one can know what tax rates in the future will be, but paying 40+% tax on your Roth contributions is not good lol.
Compound investing in a Roth is such an advantage it’s almost unfair. Dollar cost average a little each month or week from the age of 18 into S&P 500 and it is a question of how many millions tax free you will have in retirement.
Very helpful advice. Especially helpful if someone is working and still living in a state with no state income tax, and contemplating retiring in the future to a high income tax state.
I can have control of my tax situation by making tax-deferred retirement savings while working and then using Roth conversions between retirement and when I would be subject to RMDs to choose when and how to pay taxes. Between Roth conversions in early retirement, qualified charitable distributions (QCDs) in my 70s and taking advantage of the standard deduction throughout, there are ways to use tax-deferred retirement savings to increase flexibility.
Roth's are good to a point, but under 59.5, that money is tied up, which is why a mix with brokerage is good (after maxing pre-tax). Just like you don't want people tying up their money - that they might need - in a paid off house with a low-interst mortgage, similarly, all Roth, all the time seems over simplified?
One must considered converting money to a Roth while still earning income. When you have to start taking RMD’s and add your Social Security at 70 suddenly you may find yourself in a much higher tax bracket. Even before tax rates go up and don’t forget Medicare cost!
Great segment, guys! Would you care to expand the topic on Roth IRAs by having another segment on back-door Roth IRAs? Thanks for the great info and have a wonderful day!
How do you factor in that, by delaying taxes into the future, you have more capital to invest now, leading to more compounding and greater total returns in the future?
All that talk about Roth accounts and you didn't even mention the back door Roth conversion loophole option to avoid the income restrictions. There are some caveats and the IRS may close the loophole at some point, but it can be a great option for some to put more money in a Roth account.
Very few folks have the luxury of not needing their IRA for income at retirement, much less the low withdrawal rate associated with their RMD. If you made $250k-$700k for example during your highest earning years, your income was too high to contribute to a Roth. And, Roth conversions at that income are very costly. If you have $3,000,000 in an IRA, and take out 5%, that's $150,000 pretax. Not counting social security, pensions, or other income, you're still in a much lower tax bracket than you were while working. Bottom line, most folks I work with aren't in a higher tax bracket in retirement. If you can sock money into a Roth early on, great. You'll have a big Roth at retirement (tax-free), IRA income (taxable), and hopefully a brokerage account to draw on at a low rate.
One flaw in your argument is that if you make a lot of money in California or New Your you will no longer qualify for a Roth as you will be allocation will be phased out with that income increase. I agree that this will happen over time but the MAGI limits to not increase at the pace of increased income.
Oh Well I'll never understand the financial ignorance of These High Tax Bracket folks. Some folks must be able to make a lot of money without any Financial intelligence. Roth been Around a Long Time now and If You just figured it out now well I guess you must have been busy for the last few decades earning all that money 🤑🤩.
"All Roth...all the time"? Should we really be taking advice from someone who "didn't even know what the heck a Roth was 10 to 12 years ago"? Stick with the "personal" in Personal Financial Planning when figuring out what's right for you.
Sorry gang, this felt like a scheduled guest canceled so you pulled a random person off the street or was just completely “mailed in.” This approach is counterproductive because it creates distrust amongst your viewers. Just trying to entertain this guest’s opinion as helpful for listeners comes off with a level of insincerity. If happening repeatedly it discredits the host for being willing to converse with guests lacking fully formed, worthwhile opinions. Beyond that it starts to harm the brand of the channel that’s hosting the host.
Hey not so fast. The actual invested Roth amount is tax free but note that all earnings on Roth accounts are still taxable and are subject to an early withdrawal penalty if applicable.
That's not correct. Earnings on Roth accounts are not taxable as long as the user is removing them from the account after 59 1/2. You're right about early withdrawal penalties though. I think you are getting Roth mixed up with "after-tax contributions" to 401k/403b plans where the person also contributes after-tax dollars to the account but all earnings are taxed like they are pre-tax upon withdrawal.
"All Roth all the time" is way too general advice and is not good. As with most things in life, you want a blend -- some pre-tax and some Roth. At the very least, you want enough in pre-tax so you can withdraw the standard deduction amount in retirement each year, so it will essentially be untaxed.
If you're really in the top income tax bracket (37%), then Roth is not a good deal for you, especially if you are in a high income tax state. Granted, no one can know what tax rates in the future will be, but paying 40+% tax on your Roth contributions is not good lol.
Agreed for really high earners it makes way more sense to go pretax
Compound investing in a Roth is such an advantage it’s almost unfair. Dollar cost average a little each month or week from the age of 18 into S&P 500 and it is a question of how many millions tax free you will have in retirement.
Very helpful advice. Especially helpful if someone is working and still living in a state with no state income tax, and contemplating retiring in the future to a high income tax state.
I can have control of my tax situation by making tax-deferred retirement savings while working and then using Roth conversions between retirement and when I would be subject to RMDs to choose when and how to pay taxes.
Between Roth conversions in early retirement, qualified charitable distributions (QCDs) in my 70s and taking advantage of the standard deduction throughout, there are ways to use tax-deferred retirement savings to increase flexibility.
Good segment.
Roth's are good to a point, but under 59.5, that money is tied up, which is why a mix with brokerage is good (after maxing pre-tax). Just like you don't want people tying up their money - that they might need - in a paid off house with a low-interst mortgage, similarly, all Roth, all the time seems over simplified?
One must considered converting money to a Roth while still earning income. When you have to start taking RMD’s and add your Social Security at 70 suddenly you may find yourself in a much higher tax bracket. Even before tax rates go up and don’t forget Medicare cost!
Great segment, guys! Would you care to expand the topic on Roth IRAs by having another segment on back-door Roth IRAs?
Thanks for the great info and have a wonderful day!
How do you factor in that, by delaying taxes into the future, you have more capital to invest now, leading to more compounding and greater total returns in the future?
All that talk about Roth accounts and you didn't even mention the back door Roth conversion loophole option to avoid the income restrictions. There are some caveats and the IRS may close the loophole at some point, but it can be a great option for some to put more money in a Roth account.
Very few folks have the luxury of not needing their IRA for income at retirement, much less the low withdrawal rate associated with their RMD. If you made $250k-$700k for example during your highest earning years, your income was too high to contribute to a Roth. And, Roth conversions at that income are very costly.
If you have $3,000,000 in an IRA, and take out 5%, that's $150,000 pretax. Not counting social security, pensions, or other income, you're still in a much lower tax bracket than you were while working. Bottom line, most folks I work with aren't in a higher tax bracket in retirement. If you can sock money into a Roth early on, great. You'll have a big Roth at retirement (tax-free), IRA income (taxable), and hopefully a brokerage account to draw on at a low rate.
Agree re it’s not that simple. And the RMDs are pushed out for people working now to 75.
I would at least do pretax 401k up to the match, then max out HSA which is triple tax advantage, then roth ira, finally a brokerage account.
GREAT, MORE ADVICE FROM THE RICH HOW TO AVOID TAXES
This is wildly over-simplified and frankly terrible advice. I thought the Compound had higher standards that this?
If you are too much of a high earner, you can't even do a Roth IRA.
You can do a backdoor Roth IRA
One flaw in your argument is that if you make a lot of money in California or New Your you will no longer qualify for a Roth as you will be allocation will be phased out with that income increase. I agree that this will happen over time but the MAGI limits to not increase at the pace of increased income.
U can always do a back door Roth for a Roth I.R.A. for a Roth 401k it doesn't matter how much u make
@rolandosouffrain7957 not always. You can't have a Tradional IRA, or in my case a SDIRA that holds real estate
September Dip-buying in the EV and AI sectors with Double -digit gains this week. Thumbs Up video/ comments. Thanks.
Oh Well I'll never understand the financial ignorance of These High Tax Bracket folks. Some folks must be able to make a lot of money without any Financial intelligence. Roth been Around a Long Time now and If You just figured it out now well I guess you must have been busy for the last few decades earning all that money 🤑🤩.
"All Roth...all the time"? Should we really be taking advice from someone who "didn't even know what the heck a Roth was 10 to 12 years ago"? Stick with the "personal" in Personal Financial Planning when figuring out what's right for you.
Roth 401 k to Roth IRA wasn’t explained
Build wealth income tax free by Moving to Woke-Free Dubai, UAE.
lol never a fan of this Mark guy
Sorry gang, this felt like a scheduled guest canceled so you pulled a random person off the street or was just completely “mailed in.” This approach is counterproductive because it creates distrust amongst your viewers. Just trying to entertain this guest’s opinion as helpful for listeners comes off with a level of insincerity. If happening repeatedly it discredits the host for being willing to converse with guests lacking fully formed, worthwhile opinions. Beyond that it starts to harm the brand of the channel that’s hosting the host.
Sorry you feel that way, but I assure you we all work very hard on all Compound content and no one is "mailing it in."
@@TheCompoundNews I actually found this quite informative
Hey not so fast. The actual invested Roth amount is tax free but note that all earnings on Roth accounts are still taxable and are subject to an early withdrawal penalty if applicable.
That's not correct. Earnings on Roth accounts are not taxable as long as the user is removing them from the account after 59 1/2. You're right about early withdrawal penalties though. I think you are getting Roth mixed up with "after-tax contributions" to 401k/403b plans where the person also contributes after-tax dollars to the account but all earnings are taxed like they are pre-tax upon withdrawal.