Exposing The Truth About Roth IRA VS Traditional IRA (Using Math Comparisons)
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- Опубликовано: 29 июн 2024
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In this video, we dive deep into the differences between Roth IRAs and traditional IRAs from a mathematical standpoint to help you maximize your retirement benefits.
We’ll break down how each option works, explore the tax implications, and provide you with the knowledge to make informed decisions about your retirement savings.
Our goal? To ensure you get the most out of your retirement savings by understanding the numbers behind these two types of accounts.
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Show Notes:
0:00 Introduction
1:00 Traditional IRA Contributions and Tax Deductions
2:35 What is a Roth IRA from a Math Standpoint
5:00 Identifying the Best Option for You
8:28 Remember This Tip
9:58 Conclusion
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ABOUT TOBY MATHIS
Toby Mathis, Esq. is the best-selling author of Infinity Investing: How the Rich Get Richer And How You Can Do The Same. Toby is a tax attorney and founded Anderson Business Advisors, one of the most successful law, tax, and estate planning companies in the United States. Learn more at aba.link/tobyaba
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#rothira #ira
Do you want to dive deeper into retirement accounts and talk to someone on my team? Schedule your free consultation now. aba.link/uos
The world needs more Toby Mathis'. Thank you, sir!
Thanks a ton for the shoutout!
Two things to consider 1) tax rates can go up. Historically these are the lowest tax rates we have had and 2) if you do well you have rmds to deal with which can add taxes to your SS and Medicaid taxes
I have a pension and SS along with our low business owners taxes will pay more later unless my wife closes the business.
I love the fact that you know (and say out loud!) that the comparison is NOT $10k vs $10k per year. It's $10k vs $7.5k (or whatever) because of the tax.
I love your work!
I just don't know what to say other than, "You're Amazing!"
I have a Roth IRA with Edward Jones and a rollover 401k from my old job and that is with Charles Schwab. Both are high risk, growth. I contribute just 50 a month into Roth. Nothing in Rollover as of yet. No debts to speak of. No car payments. Employed.
Thanks for making that so understandable! I’ve never had this explained so clearly.
Glad it was helpful!
That was incredibly helpful! Thanks, Toby!
Hey, thanks for watching!
Coach happy father's day
Having a mix of tax deferred and tax free accounts for retirement allows you to have maximum flexibility. You can hedge against positive tax drift over time. Additionally you avoid RMD and potential social benefit impacting effects when withdrawing from tax free accounts like a Roth as your AGI is not increased when you withdraw. Example benefits of this would be giving you flexibility to cover large costs, make large new investments or purchases without increasing your taxes due to AGI going up in retirement.
I would never prepay taxes. Esp if you can live under the standard deduction
What do you mean prepay taxes?
@@drprofessor1414 Roth, you pay taxes upfront. Thats pre-paying because you cant use the money right now.
@@oSnapMillerTime ahh I think I understand. So I get taxes pulled out of each of my paycheck along with contributions to my company matched 401k, then I use post tax dollars to fund my Roth. Are you saying that’s a bad deal because I’m prepaying the taxes by investing post tax dollars to potentially in return have a positive return here in 20 years when I retire?
@@drprofessor1414 I'm saying you are paying taxes on money you could potentially never use. Or, if you plan living a minimal lifestyle, you could potentially not pay any taxes anyways using the standard deduction. Correct me if I'm wrong.
@@oSnapMillerTime okay that definitely makes sense, and certainly concerns me about investing in general. I live a pretty conservative lifestyle right now and forgo a lot of fun and wants to try to fund these retirements but I’m unsure if retirement will even be a goal for me in 2060 which is my target date of 60 years old
I’m unsure what to do with my spare money now, I have most in high yields savings
The 1 item that throws a wrench is RMD’s. My calc show myself having 6 figure RMD’s so that throws you into high bracket. Definitely a calc more people need to look into closer for sure
The government can raise the tax percentages for each bracket to try to reduce our debt. Another factor to maximize your Roth IRA.
Both. Why not take advantage of both their strengths?
What about when they keep increasing your taxes... 😅
Thank you Toby!
I appreciate your support!
@tobymathis quick question? If you are in a higher tax bracket why do a traditional IRA when you aren’t eligible for tax deduction? I think a brokerage account will better serve high earners because there are no limits on when funds can be accessed
Great question, to assist you further, I highly recommend you request a free 45-minute consultation to discuss this with my team so we can provide you with an answer that is unique to your situation. Visit: aba.link/uos
Thanks Toby! Is there benefit to doing both? like a certain percentage into traditional and another amount into Roth? I have a hard time being super confident in what my tax situation will look like 20-30 years down the line
Another thing to consider is State Taxes. If you live and work in a state with high income tax and retire in a state with no income tax, it would make sense to go traditional. Example MD has high income taxes (state and county) on top of your federal tax, if I retired in FL next year I would only be obligated to pay federal income tax.
I'm getting pretty good at day trading so i just started a Roth because I'm pretty sure I'll make more running it myself as opposed to letting someone else do it. That's some great info though on which way to go. Thanks a lot your videos are helping my brain to start working again!
That's awesome to hear that you're finding success. Thanks for watching =)
I think a better question would be whether to switch from investing in a pretax account to a Roth during market downturns.
Thanks for sharing your thoughts
A stock market downturn has happened about ince a decade. With rule 72 and portfolio doubling every 7-years, you might want to plan for each.
I’m curious about your thoughts on crypto IRAs and and do you know of any that allow transfers to EDX Markets for futures trading?
Assuming the irá goes up, very likely. But if it should go flat or even down like Japan in the late 80s the Roth already got taxes paid, the traditional ira you only pay on the gains
Im doing ROTH because:
1. I’m 72 and I don’t want to take any distributions
2. There is no tax on growth. My investments inside the ROTH are growing greater than 25% annually. I’m paying tax on the acorn and not the tree.
There is that thought of how many years of growth can on expect. If your life expectancy is another 20-years a Roth today is fine. But if your two decade younger trophy wife has to live off it and is expected to live longer a non-Roth investment may be better.
Which investments give 25% return?
The SP 500 got 25% return in last 12 months
We have been funding our Roths for years with dollar cost averaging until we learned (in April) of the AGI max. We had to move the extra funds that put us over the agi limit and put it in a non deductible traditional IRA from last year's contributions. This year (Jan - April) we have to move this years contribution to a non deductible IRA and going forward. Would you cover this in more detail?
You’re saying you can’t contribute to a Roth because of income levels? you can always do a conversion
Just getting going with short term investing and trading in stocks.. Can you do a video with the nuances of LLc &CCorps in the different states? I am in FL.
Hey, thanks for the idea! I'll look into the differences in LLCs and CCorps in different states, especially for Florida. Appreciate your input!
I don't quite understand. So I can max out my Roth IRA OR Traditional IRA but not both? I understand both IRAs combined total amount is $7k only (within the specific income range, filed as single). How about SEP-IRA since I am in a partnership-self-employed with no personal retirement account other than the Roth IRA?
Thanks for bringing up this important question! It can be tricky to navigate retirement account options. I recommend setting up a free consultation to discuss some strategies and how they apply to your unique situation. Sign up here: aba.link/uos
You don’t get the tax write off if you’re over $77k single and $120k joint in a traditional IRA correct?
Great question, to assist you further, I highly recommend you request a free 45-minute consultation to discuss this with my team so we can provide you with an answer that is unique to your situation. Visit: aba.link/uos
Never done this before. Just a couple things. It's not just what the tax rates are now, but what they probably will be in the future. The Trump tax cuts will probably go away soon and we are at a historically low tax rate. What's the national debt in the way things are going taxes will only go up, so I say shelter as much as you can. Also know there are proposals in Congress to more than double the capital gains tax on realized and unrealized gains. You don't have capital gains tax inside a Roth. In a traditional IRA or 401k plan you get taxed over and over and over again.
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I personally like the Roth with the national debt growing as it is I think it is foolish to think tax rates are going to remain low. Also I have talked to some older friends who retired with large amounts in their 401k and were hit with with large minimum distribution requirements which made their taxes go up significantly. In my case I have a mix of traditional and Roth but my plan is not to contribute any more to the traditional. I might convert some of it to Roth after I retire.