Traditional VS Roth IRAs: The Ultimate Showdown!

Рет қаралды 117

Күн бұрын

#rothira #retirementinvesting #investing
Which IRA is the best for you? Traditional vs Roth IRA: which makes the most sense for you? The results in this video may surprise you! In this video I'll go over what an IRA is and the differences between a Traditional IRA and a Roth IRA. We'll also walk through several examples showing which IRA wins out in the end. Which one do you think is the winner in most cases?
Don't forget to subsrcibe so you are notified when I put out new content focused on your money and how to manage it best!
00:00 Intro
00:29 What is an IRA?
00:56 IRA Tax Advantages
01:21 IRA Contribution Limits
01:42 Traditional IRA Deductions
02:14 Roth IRA Contributions
03:16 IRA Withdrawal Rules
05:07 Required Minimum Distributions (RMDs)
06:20 1st IRA Example
07:05 2nd IRA Example
07:32 3rd IRA Example
08:19 Wrap-Up
LINKS
How to calculate MAGI - www.nerdwallet.com/article/ta...
RMD Calculator - www.bankrate.com/retirement/i...
IRA Calculator - www.voya.com/tool/roth-ira-ca...
My KZfaq Channel - / @know_your_money

Пікірлер: 4

@Know_Your_Money 3 ай бұрын

Thanks for watching this video. Let me know in the comments if you agree or disagree with any of my examples in the video. I also wanted to list the links from the video here as well: How to calculate MAGI - www.nerdwallet.com/article/taxes/modified-adjusted-gross-income-magi RMD Calculator - www.bankrate.com/retirement/ira-minimum-distribution-calculator/ IRA Calculator - www.voya.com/tool/roth-ira-calculator My KZfaq Channel - kzfaq.info/love/1mXr7Awo6nYNfluf5ESDTw

@mavamQ 3 ай бұрын

OK, I don’t know what is being calculated in the Voya calculator. We both know that $7k earning 10% for 42 years will have equal value whether you put it in a tIRA or a Roth IRA. The vehicle doesn’t matter. It is true that you will owe tax on any withdrawals from the tIRA. But the calculator only has a 10.4% difference where the tax rate listed is 22%. I don’t get what they are calculating. From the Bogleheads wiki, “When the withdrawal marginal tax rate will be the same as the marginal tax rate saved by a traditional contribution), thanks to the commutative property of multiplication (i.e., A * B * C = A * C * B) the traditional and Roth results are equal.” Yes, you must include the fact that you do need to invest the tax savings you get the year you make the tIRA contribution. Another way it might be said is, equal dollars out of your pocket at contribution time is equal dollars in your pocket at withdrawal time, whether using a tIRA or a Roth IRA as long as the tax bracket is the same. An important point for the Roth for me, is when I die, my wife will, (because of filing single) jump to a higher tax bracket. I have been Roth Converting for about 5 years now, hoping to reduce my RMDs to below what our spending is, or at least keep us in the 12% bracket--- or whatever the new rate is changed to in 2025. Please respond with any additions or quibbles.

@Know_Your_Money 3 ай бұрын

Thanks for the feedback! The calculator is taking in several factors including the average market return each year as well as the tax brackets you are in when contributing and when you retire. And of course the earnings from the investments will be the same, but the two big factors that contribute to a Roth IRA being a better option are tied to you either being in the same or similar tax bracket when earning and retiring and the other factor being the average market return over the life of the investments. As those investments grow larger the tax burden continues to grow with it in a traditional IRA while a Roth all of those investment earnings are tax free. Here's another calculator from JP Morgan that backs up Roth being better than traditional unless you're in a much lower tax bracket during retirement and/or the market doesn't perform well over all those years. www.chase.com/personal/investments/retirement/retirement-calculators/traditional-ira-calculator

@mavamQ 3 ай бұрын

@@Know_Your_Money Someone else described what I wanted to say better than I could. "No, if the tax rate is the same then a Roth does not come out ahead all else being equal. Let's take a hypothetical couple whose tax rate is 22%. If they invest $10k annually in a Roth for 30 years and the account earns 5% then at the end of 30 years the balance is $664,388.48 [=FV(5%,30,-10000)]. The $10k annually would be $12,820.51 pre-tax [(10000/(1-22%)] so with the Roth they are paying taxes on $12,820.51 of income or $2,820.51 in taxes for a net cash flow of $10,000 used to make the annual ROTH contributions. If they invest $12,820.51 annually in a traditional IRA for 30 years and the account earns 5% then at the end of 30 years the balance is $851,780.10 [=FV(5%,30,-10000/(1-22%))]. They avoid having to pay income tax on that $12,820.51 annually. The $851,780.10 would have an after-tax value of $664,388.47 [$851,780.10*(1-22%)] " Note: both have the same spendable dollars.