Roth vs Traditional IRA and How You Get the Best of Both | Summary and Q&A

TL;DR

Most Americans are missing out on the benefits of IRA and Roth IRA accounts, potentially losing $90,000 or more in extra returns over their portfolio. This video explains the differences between the two and offers a strategy to maximize their advantages.

Key Insights

• 🎟️ Many Americans are not investing in IRA or Roth IRA accounts, missing out on potential extra returns of $90,000 or more.
• 🚕 Traditional IRA contributions offer an instant tax break, while Roth IRA contributions do not, but withdrawals in retirement are tax-free.
• ❓ It is possible to have multiple IRA or Roth IRA accounts across different platforms.
• 🚕 To maximize the benefits, individuals can contribute to an IRA for the tax break and conduct Roth conversions every few years for tax flexibility in retirement.
• 😘 IRAs offer more investment flexibility and lower fees compared to 401K plans.
• 🤕 The average IRA balance varies by age, increasing over time.
• 🤕 IRA contributions are capped at $6,000 per year, with an additional catch-up contribution of $1,000 available for individuals aged 50 or older.

Transcript

Most Americans are losing $90,000 because they don’t know the benefits of an IRA or the differences between a Roth vs traditional IRA account. In this video, I’ll not only show you how to decide between these two types of retirement investments, I’ll reveal a strategy to get the best of both. We’re talking retirement plans explained today on Let’s ... Read More

Questions & Answers

Q: What are the differences between an IRA and a Roth IRA?

An IRA offers an instant tax break, deducting contributions from taxable income, but taxes are paid on withdrawals in retirement. A Roth IRA does not provide an immediate tax break but allows for tax-free withdrawals in retirement.

Q: Can I have multiple IRA or Roth IRA accounts?

Yes, individuals can have multiple IRA or Roth IRA accounts across different platforms, providing access to different types of investments and taking advantage of various promotions or bonuses.

Q: What is a Roth conversion?

A Roth conversion involves moving money from a traditional IRA to a Roth IRA, allowing individuals to bypass income limits and benefit from tax flexibility in retirement. Taxes are paid on the converted amount.

Q: How can I decide between an IRA and a Roth IRA?

The old school of thinking was to choose based on the current and future income levels. However, a better strategy is to maximize the benefits of both by contributing to an IRA for an instant tax break and conducting Roth conversions every few years.

Summary & Key Takeaways

• Many Americans are not taking advantage of the benefits of IRA and Roth IRA accounts, with only one-third of households investing in an IRA and the average contribution falling below the maximum allowed.

• An IRA offers an instant tax break, allowing individuals to deduct the contribution from their taxable income, but taxes are paid on the withdrawals in retirement. A Roth IRA, on the other hand, does not offer an immediate tax break, but withdrawals in retirement are tax-free.

• The video explains the contribution limits, investment flexibility, and average balances of IRAs, as well as the pros and cons of both IRA and Roth IRA accounts.