Just about everyone saving for retirement is faced with the option: Traditional or Roth.
It doesn’t matter if you are saving for retirement through an Individual Retirement Account (IRA) or a company-sponsored plan like a 401(k) or 403(b). You typically have the ability to choose between these two options.
Unfortunately, most people default to choosing the wrong option which means they could be missing out on tens of thousands of extra dollars in their retirement accounts.
In today’s episode, you will learn:
- Why we put money in retirement accounts to begin with
- The rules of thumb for choosing a retirement account and why you might not want to follow them
- Which type of retirement account – Traditional or Roth – is the best option (for most people)
- The flipside of the argument so you make an informed decision about what is best for you
- A common misconception about retirement accounts and how to address this
- One super simple trick for choosing the best investment options in your retirement account
If you want to save more money, reduce your future tax bill, and invest smarter, you don’t want to miss today’s episode.
Resources for this Episode
0:43 – Welcome!
2:22 – Disclaimer: This is for information and entertainment purposes only. Please speak to your tax professional, CPA, or financial planner about retirement accounts. There are a lot of tax implications to consider.
2:52 – Introduction to 401(k)’s and Individual Retirement Accounts (IRA) and why you should use them when saving for long-term goals.
4:14 – Traditional vs Roth retirement accounts, which is the better option for most people?
5:05 – Rules of thumb when picking the right type of retirement account and why you might not want to follow them.
7:31 – Two examples to highlight the advantages of each option, starting with traditional 401(k)’s.
10:15 – How a Roth really works (in plain English).
12:40 – Why you need to pay attention to Required Minimum Distributions (RMDs).
14:48 – The flexibility of a Roth.
15:52 – The Roth is great for tax planning.
18:10 – Using a Traditional account is like compounding your tax bill.
19:17 – Advantages of the Traditional retirement account, starting with the uncertainty of future tax rates.
20:31– The benefits of a Traditional retirement account if you plan to retire early.
22:07 – Mad Fientist IRA funding strategy for super nerds.
22:47 – Argument for splitting your funds between Roth and Traditional, according to Clark Howard.
24:00 – Using tax breaks as an incentive to save.
25:35 – A common retirement savings misconception and the next step after contributing to a retirement plan.
26:55 – Basic investing strategy for your retirement account: focus on lower cost options.
30:03 – The importance of diversification.
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