Dave Ramsey says: Choose Roth 401(k) to save more money

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  • cjb Bountiful, UT
    June 21, 2014 7:17 a.m.

    A person asks if they should have Roth IRA or a regular IRA. Dave responds take the Roth. I love it. I've read so many other respected experts respond to this question saying it depends and go on with what seems like a convoluted 20 minute analysis. With a Roth the money is yours. You don't have to worry how high taxes go because of government mismanagement. Its not rocket science and shouldn't be made more complicated than it is.

  • kiddsport Fairview, UT
    June 18, 2014 1:42 p.m.

    Because of the uncertainty in future tax rates, it's a good idea to have some money in both kinds so you have choices which funds to pull from based on conditions as they exist in retirement.
    But I agree with Riverton Cougar that as long as Democrats and spineless Republicans refuse to curb spending, taxes will be going up.
    Also, according to demographic analyses by Harry Dent and others, peak spending years come before retirement age, which should put you in a lower tax bracket.

  • Bob Wiley North Salt Lake, UT
    June 18, 2014 8:58 a.m.

    One thing worth mentioning is that Roth 401(k) or Roth IRA earnings are *never* taxed. Say over the course of your career you contribute $500,000 to your Roth 401(k) - you pay taxes up front on all of that. But come retirement time, you may have $1 million due to market appreciation. You never pay taxes on that $500,000 in earnings and now you have $1 million with no tax liability.

  • Riverton Cougar Riverton, UT
    June 17, 2014 4:43 p.m.

    Dave's advise about Roth IRAs is based on the assumption that taxes will be higher when you withdraw than when you deposit. I think this is generally right for a few reasons:

    1) Most people investing in an IRA are likely married and have a family to take care of, and with all the dependents to care for their taxes will most likely be lower. On the other hand, most retirees have no dependents or only their spouse.

    2) Dave's plan means living on as little as you can, but leads to a wealthy retirement. Dave's philosophy seems to be to live like a poor person and save, save, save, so that when you retire you are rich (it's like taking all the tough and retired classes your freshmen and sophomore year, so your last year or two are filled with fun electives). With a higher income, taxes will be higher.

    3) As long as Democrats are in power, the taxes will be going up and up and up.

  • TheProudDuck Newport Beach, CA
    June 17, 2014 1:55 p.m.

    Withdrawals from Roth IRAs are only non-taxable as long as government says they're non-taxable. Do you trust this regime not to change the rules in the future?

    Not me. I'll take my tax exemption while I know I have it, not when I think I might have it if politicians don't get greedy.

  • Max Upstate, NY
    June 17, 2014 10:23 a.m.

    Dave's advice is usually pretty good but he often misses the boat in his explanations WHY. The question of whether you should choose a Roth or a standard retirement plan depends on what your tax bracket is today versus where it will be when you retire (and nobody knows for sure what that will be). In his example, he is assuming that your investments will grow to the exact same amount in either plan. This is unlikely because the deposits into a standard 401(k) are pre-tax, which allows for bigger deposits. Roth deposits are after-tax and are thus more expensive to make, which may make them smaller. Nevertheless, there are other benefits to the Roth that make it appealing and I would agree with Dave that it is a good choice because it is likely that with our out of control gov't spending that tax rates will be even higher when the withdrawals are made.

  • wvcon Charleston, WV
    June 17, 2014 8:50 a.m.

    The Dave Ramsey answer about the Roth 401(k) was way too simplistic and not necessarily accurate in my opinion. In a regular 401(k) you will save money on taxes as you are making your contributions because those contributions are not taxed. If you invest that 'tax savings' money and don't spend it until retirement, you should add that amount of money to the comparison of the regular 401(k) vs the Roth 401(k). If you make that comparison you will not lose 30 to 40 percent of your money, and you may actually have more money. Bankrate.com and other websites have calculators that help you analyze the options.