Exposing the TRUTH About Roth vs Traditional Accounts | Financial Conversations

i'm 36 next month and I just hit 6 figs in my retirement accounts. I realized not long ago that I have no idea what I'm doing and I want to start maxing my contributions very soon so I can live the life I want in retirement. This video has really helped me understand how my finances will be in retirement. You have earned a new subscriber and I look forward to learning more. Honestly, thanks a lot for posting this video!

The increasing tax rate is the reason I rolled over my 401k to a ROTH. I wouldn't want to be paying taxes on current income on withdrawals made from my retirement account. I have been maxing out my 401k, 457b and Roth IRA for the past decade. Two incomes doing the same. Grinding down hard in my 20s-30s to let it ride into my 40s and beyond.

You talked about everything except the tax trap for a surviving spouse. If you have a large amount of money in a 401k or IRA the RMDS will eat you alive, your tax bracket will double and you pay more for Medicare, by converting to a ROTH early all money is tax free with no RMDS and no increase on Medicare insurance.

I’m a CPA and did this same calculation a few years ago, I’m glad to see this get some attention.

Thank you. I appreciate that you are addressing my demographic of 18-65.

I gradually moved Traditional IRA money into my Roth over the years while I continued to contribute to the Roth, so now 98% of my retirement funds are in a Roth. Tax rates are at historic lows now, and I’m certain they’ll have to rise in the decades ahead. It’s great knowing that a chunk of my future retirement income will be mine, tax free.

the guy in the white shirt is an excellent communicator.

IT IS A NEAR GUARANTEE THAT A FUTURE CONGRESS WILL FIND A WAY TO TAX, DIRECTLY OR INDIRECTLY, ROTH MONEY. “Your Social Security will never be taxed.” -FDR

As a Tax Preparer who is also a CFP(R), it is so refreshing to see discussions like this. There's such a lack of financial education in schools, and many people never get to hear how the various financial fields (taxes, retirement planning, investments, estate planning, etc.) all interact (or should) in making financial decisions. In terms of Roth vs Traditional IRA's, throw in considerations like age, likelihood the funds may be left to an hier, possible use for something non-retirement related (like buying a house or covering a temporary job loss or disability), reducing income to obtain a larger ACA health plan subsidy, the fact that a normal brokerage acct defers taxes by simply not selling, and more. Great job guys!

Holy cow! Thank you so much for this segment. The concept of Roth IRA versus traditional IRA has always confused me. I have always been taught that one should always get a Roth IRA, now I get the concept that there are times when a Roth IRA is more beneficial than a traditional and vice versa. Thank you thank you thank you. This has been so helpful..

I might have missed this but another big advantage to Roth IRAs is they do not have Required Minimum Distributions (RMDs). This gives you better control over how much money you must withdraw (heavy liquid) and declare as taxable income, after age 72. For anyone with a large traditional IRA, they might end up in a higher tax bracket when RMDs kick in. I've heard it called a Tax Bomb.

Another thing about converting to Roth in pre- and early retirement years is using the lower brackets while you can still file jointly. RMD's don't go down when a spouse passes (assuming the spouse is the beneficiary of all accounts), but rates effectively double when you're suddenly single.

I've known this fact for years now but it's SO GOOD to see someone explain it to the public THIS WELL! THANK YOU SO MUCH, ZACC!!

I am trying to get a deeper understanding of retirement accounts and found this video to be very well done and very informative. Thank you for explaining the topic from different angles rather than trying to frighten people into a specific course of action.

Nice discussion. We’re in the 24% bracket, have about 18 years of work left in us, and are 100% Roth. I have a company stock plan as well that will behave like a traditional IRA and be quite significant. I never thought about switching to traditional, but might do that as we get closer to retirement as the taxes on the growth aren’t as much of a consideration on that money. For me, the freedom of not having a government speed limit when I get to finally spend my savings is worth A LOT to me right now. That’s why I choose Roth, knowing it’s costing me more in taxes now. I don’t want to have to ask the tax question every time I pull my own money out.

Wow! I started this video thinking I would skip through a lot, but watched from beginning to end. Great video. Terrific job guys.Thanks Erik & Zach.

Finally! somebody addressing the very logic I had about Roth vs Traditional. I put some money in the both Roth and Traditional to give me options later with taxable income. I see the Roth portion as a tax management strategy should I incur a large(r) expense in retirement that would push me to a higher tax bracket for a given tax year. Nice talk about this Zacc!

Props for discussing the split Roth/Traditional strategy and why you should also have non-retirement advantaged investments in your retirement mix. Too many Roth vs Trad comparisons omit those. But you still missed the other thing that all of these from industry insiders miss. The form 8880 tax credit can matter a lot for some savers. And it's a great example of how the deduction for traditional IRAs can lower AGI in order to qualify for tax credits with income limits or phase outs. Because marginal tax bracket is not always the only thing that matters for tax efficiency -- for savers of more modest incomes, credits can be a bigger part of the tax picture.

Mixing deductible and non-deductible contributions is an accounting nightmare. Thanks for confirming this to everyone!

Roth's also have other advantages. When you withdraw those funds in retirement it does not count towards your taxable income. This could be the difference between the 12% bracket and the 22% bracket. This is huge jump for a lot of retirees because they have dividend income. If you are in the 12% bracket, LT dividends are taxed at 0% (tax free). If you are in the 22% bracket, LT dividends are taxed at 15%. That's a HUGE difference in taxes.