Aug 29, 2019
This week, I’m talking about the Roth. Roth 401ks and Roth IRAs are one of the most googled topics on retirement.
What’s interesting, though, is that in practice, I find that not enough people take advantage of the Roth. So the aim of this week’s tips is to help you better understand why the Roth is a compelling choice, especially in those last few years as you approach retirement.
Yesterday, I told you what 2 pieces of garbage advice about the Roth you can ignore. Today, I’m talking about how to determine which option is best for you - a Traditional IRA or 401k or a Roth IRA or 401k.
The Roth IRA was established by the Taxpayer Relief Act of 1997, so with a little over 20 years of history now, more data is available on the benefits of the Roth, compared to the Traditional IRA or 401k.
More history means that we have more evidence to suggest that Roths are a good choice for at least part of your retirement assets. One study done a few years ago looked at the Roth 401k vs. Traditional 401k contributions. They ran thousands of different scenarios and the conclusion that they came to is that most people would be better off contributing to BOTH a traditional 401k and a Roth 401k.
But guess what, every single dollar that your employer puts in to your plan through matching and profit sharing contributions is pre-tax dollars. So the only way you can get money into your Roth bucket when you utilize it through your 401k, is by contributing to the Roth from your own paycheck.
So the moral of the story is that with different tax treatments and the power of the tax-free growth that the Roth offers, it should be a component of your retirement portfolio.
You can contribute to a Roth IRA if you qualify, or a Roth 401k if your company offers that option. And since most people end up with a sizable about of Traditional IRA and 401k assets by the time they reach retirement, it makes a lot of sense to load up on those Roth contributions while you still can.
That’s it for today. Tomorrow, I’m going to talk about why you still want to look at the Roth, even if retirement is near.
Thanks for listening! My name is Ashley Micciche and this is the One Minute Retirement Tip.
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