Oct. 1, 2025

108: Which IRA Is Best for You? Roth vs Traditional Explained Simply

108: Which IRA Is Best for You? Roth vs Traditional Explained Simply

Confused about Roth vs Traditional IRAs? You're not alone. In this episode, Jess and Brandon break down the pros, cons, and real-world impact of choosing a Roth IRA versus a Traditional IRA for your retirement game plan. Learn how taxes, income levels, and long-term growth factor into the decision, and why the right choice could save you thousands down the road. We cover: – How Roth and Traditional IRAs actually work – Which one fits different income brackets – Tax implications now vs late...

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Season 4

Confused about Roth vs Traditional IRAs? You're not alone.

In this episode, Jess and Brandon break down the pros, cons, and real-world impact of choosing a Roth IRA versus a Traditional IRA for your retirement game plan.

Learn how taxes, income levels, and long-term growth factor into the decision, and why the right choice could save you thousands down the road.

We cover:
– How Roth and Traditional IRAs actually work
– Which one fits different income brackets
– Tax implications now vs later
– Real-life scenarios to help you decide
– Common myths and costly mistakes

Whether you're just getting started or rethinking your retirement strategy, this episode gives you the clarity to move forward with confidence.

Head over to our YouTube channel to catch this episode in full video form.

Apply to be a guest on the show.

You can also email us at: thesugardaddypodcast@gmail.com

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We’re most active over at @thesugardaddypodcast

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Money, relationships, and the mindset to master both. Hosted by financial advisor Brandon and his wife Jess, The Sugar Daddy Podcast breaks down how to build wealth, unpack old money beliefs, and have real conversations about love and finances. Our mission? To help couples and individuals grow rich in every sense of the word: emotionally, relationally and financially.

Chapters

00:00 - Why IRAs Matter Right Now

01:20 - IRA Basics and 2025 Contribution Limits

02:40 - Lump Sum vs Dollar-Cost Averaging

04:38 - Employer Match Before IRAs

04:58 - Roth Income Limits and Penalties

06:12 - Traditional IRA Deductions and Limits

08:00 - How Roth and Traditional Taxes Work

10:00 - Access Rules, Penalties, and Liquidity

12:00 - Pros, Cons, and Required Minimum Distributions

15:30 - Why Many Prefer Roth Today

17:00 - One Limit, Two Accounts: Splitting $7,000

18:40 - Backdoor Roth: Steps and Pitfalls

21:00 - Choosing What’s Right for You

23:00 - Early Retirement Buckets and Flexibility

24:40 - Resources, Next Steps, and Closing

Transcript
WEBVTT

00:00:00.239 --> 00:00:06.160
In today's episode, we're breaking down the differences between traditional and Roth IRAs in plain English.

00:00:06.320 --> 00:00:13.199
We'll talk about how each one works, the tax benefits, the income limits, and how to figure out which one makes the most sense for you.

00:00:13.359 --> 00:00:18.800
Because the truth is, choosing the right account today could mean thousands of dollars more in your pocket tomorrow.

00:00:18.960 --> 00:00:24.239
So whether you're just starting to invest or you've been putting money away for years, stick around.

00:00:24.399 --> 00:00:27.120
This conversation could change the way you think about your retirement.

00:00:27.440 --> 00:00:29.039
Sugar Teddy podcast, yo.

00:00:29.600 --> 00:00:31.839
Learn how to make them pockets grow.

00:00:32.079 --> 00:00:34.240
Find mental freedoms for a week, bro.

00:00:34.560 --> 00:00:36.880
Smart investments, money flow.

00:00:38.000 --> 00:00:38.799
Hey babe.

00:00:38.960 --> 00:00:40.479
What are we talking about today?

00:00:40.799 --> 00:00:50.000
Today we are talking about the traditional traditional versus Roth IRA and what it means.

00:00:50.240 --> 00:00:54.320
And what to do and which one to choose and all the ins and outs.

00:00:55.039 --> 00:01:00.880
I do find that a lot of people do get kind of the specifics of each one mixed up.

00:01:01.039 --> 00:01:08.480
So I think it's definitely important that we're having this conversation so you have a clear idea of what each one is and the pros and cons of each one.

00:01:08.560 --> 00:01:14.480
So it helps you make a better determination of which one would be best for you to use, or maybe you know, you can utilize both of them.

00:01:14.719 --> 00:01:15.040
Okay.

00:01:15.840 --> 00:01:18.079
Well, why don't we just hop right in?

00:01:18.239 --> 00:01:19.439
What do you want to talk about first?

00:01:19.680 --> 00:01:23.280
Well, first we do want to kind of break it down with the basics, like what is an IRA?

00:01:23.359 --> 00:01:24.959
What does IRA stand for?

00:01:25.280 --> 00:01:26.719
Individual retirement accounts.

00:01:26.879 --> 00:01:27.040
Correct.

00:01:27.280 --> 00:01:28.079
Ding ding ding ding.

00:01:28.319 --> 00:01:32.400
And it's basically a tax advantage um account for retirement savings.

00:01:32.640 --> 00:01:32.959
Okay.

00:01:33.439 --> 00:01:37.760
But it's one that you start by yourself, not typically one that your employer gets you.

00:01:38.079 --> 00:01:38.319
Correct.

00:01:38.480 --> 00:01:39.760
That's the individual part.

00:01:39.920 --> 00:01:40.159
Okay.

00:01:40.400 --> 00:01:54.959
So the benefit of that is, you know, when you have it as an individual, if you're since it has no association with your employer, when you leave your employer, there's no need to roll it over or anything of that nature because it's your account and it has no attachment to your 401k plan.

00:01:55.359 --> 00:02:01.519
So this is also if you're leaving your employer and you don't want to roll your old 401k into a new 401k.

00:02:01.840 --> 00:02:03.120
You're jumping ahead.

00:02:03.359 --> 00:02:05.760
But I'm just like I'm thinking about things that I've done.

00:02:05.840 --> 00:02:07.359
This is something that you could then do.

00:02:07.680 --> 00:02:08.080
Yes.

00:02:08.240 --> 00:02:11.199
But let's start with the basics of what it is.

00:02:11.360 --> 00:02:11.680
Okay.

00:02:11.919 --> 00:02:12.240
All right.

00:02:12.319 --> 00:02:22.080
So for 2025, the maximum amount that you can contribute to an IRA, whether that be a Roth IRA or a traditional IRA, is$7,000 if you're under the age of 50.

00:02:22.319 --> 00:02:22.560
Okay.

00:02:22.800 --> 00:02:27.360
Now, the IRS does allow you, if you are 50 years and older, to contribute an additional$1,000.

00:02:27.680 --> 00:02:28.560
So you have$8,000.

00:02:29.039 --> 00:02:30.319
You can actually contribute to the account.

00:02:30.560 --> 00:02:30.879
Okay.

00:02:31.120 --> 00:02:38.240
I know people on social media often will say, like, you have to max out your Roth IRA, right?

00:02:38.400 --> 00:02:43.120
And then the other thing that a lot of people say is they will put the$7,000.

00:02:43.599 --> 00:02:52.560
Again, considering you're under$50, that our target audience is under$50, that they put the$7,000 into their IRA right at the beginning of the year.

00:02:52.639 --> 00:02:54.719
So it has the most amount of time to compound.

00:02:54.879 --> 00:02:56.240
What do you think about that?

00:02:57.039 --> 00:03:01.840
Well, first, in all honesty, um, it kind of depends on your situation.

00:03:02.000 --> 00:03:04.560
Now if you have it, if you've been planning for it.

00:03:04.719 --> 00:03:05.039
Yes.

00:03:05.280 --> 00:03:12.960
Putting$7,000 into the account at the very beginning of the year is going to allow you to have more time in the market so you have more potential for growth.

00:03:13.199 --> 00:03:13.520
Okay.

00:03:14.000 --> 00:03:17.360
Now, do I think that you necessarily have to do it that way?

00:03:17.520 --> 00:03:26.240
No, because you could also um break up the$7,000 over the course of a year, six months, whatever it may be, and do some dollar cost averaging.

00:03:26.560 --> 00:03:28.960
$583 a month.

00:03:29.280 --> 00:03:30.240
I just did it.

00:03:30.479 --> 00:03:31.759
Because I was like, ooh, what is that?

00:03:31.840 --> 00:03:35.360
It's$583 a month if you wanted to do it for all 12 months.

00:03:35.599 --> 00:03:43.199
Yeah, and like I said, you could do the lump sum of the beginning and invest the entire amount, or you can do dollar cost averaging on a monthly basis.

00:03:43.520 --> 00:03:50.960
Honestly, I've looked at the data behind both, and there is no conclusion as far as one is necessarily better than the other.

00:03:51.199 --> 00:03:51.520
Okay.

00:03:51.840 --> 00:03:54.639
So it's kind of up to you as far as what you know works for you.

00:03:54.800 --> 00:03:58.560
I would say, no, honestly, majority of people don't necessarily have$7,000 to dump in.

00:03:58.639 --> 00:04:02.240
So the reality is that more than likely it's going to be putting in a little bit each month.

00:04:02.479 --> 00:04:05.919
And the reality, reality, is anything's better than nothing.

00:04:06.080 --> 00:04:06.639
Oh, 100%.

00:04:07.039 --> 00:04:13.759
So even if you can't max it out at the$7,000, if you can do$3,500, a thousand, whatever you can do, do it.

00:04:14.000 --> 00:04:24.160
And I would also preface this that first and foremost, I would, you know, even though we're talking about IRAs here, I would focus on at least doing your employer match through your 401k plan first.

00:04:24.319 --> 00:04:36.560
So if you have like a 4% match at your employer, I would contribute at least 4% there before you start trying to divvy money out to an IRA because you do want to take full advantage of that employer match because it is essentially free money.

00:04:37.439 --> 00:04:37.920
All right.

00:04:38.240 --> 00:04:55.040
Let's get into the most important part of the IRA, which is what you always get so angry about because I feel like social media, like, you know, people are on social media for the clicks and they often leave out a really crucial piece of information when it comes to the IRA.

00:04:55.199 --> 00:04:55.360
Yes.

00:04:55.600 --> 00:04:56.399
You want to talk about that?

00:04:56.639 --> 00:05:08.560
So the one that I would say that you do hear about somewhat is that there is an income limitation to being able to actually utilize a Roth IRA to uh contributing the normal way.

00:05:08.800 --> 00:05:09.040
Okay.

00:05:09.199 --> 00:05:10.160
What do you mean by that?

00:05:10.480 --> 00:05:25.120
Well, once you do actually reach an income as a single individual of$161,000 per year, or if you're married and you're filing jointly, once you have$240,000 worth of annual income, you cannot contribute directly to a Roth IRA.

00:05:25.279 --> 00:05:30.480
And what I mean by that is that you cannot open a Roth IRA and then put money directly into it.

00:05:30.720 --> 00:05:31.040
Okay.

00:05:31.199 --> 00:05:35.360
Does it is this the Roth part that's the important part, or is it any IRA?

00:05:35.759 --> 00:05:37.360
Well, we're talking about the Roth right now.

00:05:37.439 --> 00:05:38.639
That is important for the Roth.

00:05:38.879 --> 00:05:42.000
These are the income limitations for a Roth IRA.

00:05:42.160 --> 00:05:42.319
Okay.

00:05:42.560 --> 00:05:49.279
So once again, once you make a certain past a certain amount of income, you cannot simply open up a Roth IRA and put money directly into it.

00:05:49.519 --> 00:05:50.800
What happens if you do?

00:05:51.120 --> 00:05:52.639
You'll be penalized.

00:05:52.959 --> 00:05:53.279
Okay.

00:05:53.759 --> 00:05:54.079
All right.

00:05:54.240 --> 00:05:56.079
So we don't want to be penalized.

00:05:56.399 --> 00:05:56.720
Correct.

00:05:56.879 --> 00:05:58.480
I'm assuming what monetarily?

00:05:58.720 --> 00:05:59.120
Yes.

00:05:59.279 --> 00:05:59.600
Okay.

00:05:59.920 --> 00:06:00.240
Yes.

00:06:00.399 --> 00:06:00.720
All right.

00:06:00.800 --> 00:06:04.399
So we have to know our income limits in order to contribute to a Roth IRA.

00:06:04.639 --> 00:06:04.959
Yes.

00:06:05.120 --> 00:06:05.439
Okay.

00:06:05.920 --> 00:06:11.279
Now, with a traditional IRA, this is the one that I think a lot of people don't talk about on social media.

00:06:11.360 --> 00:06:16.240
So I think a lot of people aren't under the impression that there are no income limitations to a traditional IRA.

00:06:16.800 --> 00:06:17.519
And there are.

00:06:17.759 --> 00:06:18.079
Okay.

00:06:18.240 --> 00:06:18.560
All right.

00:06:18.639 --> 00:06:22.240
So to kind of take a step back with the Roth IRA, didn't explain how it works.

00:06:22.399 --> 00:06:25.920
You're putting money into the Roth IRA that you've already paid taxes on.

00:06:26.160 --> 00:06:30.720
While the money is sitting in your Roth IRA, you are not paying taxes on any of the growth.

00:06:30.879 --> 00:06:34.720
And then when you pull it out in a retirement, you're also not taxed on any of the growth.

00:06:34.879 --> 00:06:39.279
So the main benefit of the Roth IRA is that you don't have to pay taxes on the growth.

00:06:39.519 --> 00:06:40.319
That's really nice.

00:06:40.480 --> 00:06:48.879
And you're hoping, because it's a retirement account, that it's going to sit there for a longer period of time to actually grow.

00:06:49.120 --> 00:06:58.319
And so if you started with$10,000 or$7,000 and now you have$50,000, you're not being taxed on the$43 that you gained.

00:06:58.639 --> 00:06:59.040
Correct.

00:06:59.279 --> 00:06:59.519
Okay.

00:06:59.680 --> 00:07:00.079
Got it.

00:07:00.319 --> 00:07:00.560
All right.

00:07:00.720 --> 00:07:07.519
Now with a traditional IRA, you're putting money into the traditional IRA and you have not been taxed on any of the money that you're putting in.

00:07:07.680 --> 00:07:12.079
While it's in the account growing, you are not paying any taxes on the growth.

00:07:12.240 --> 00:07:23.680
However, when you do get to retirement and you start pulling money out of the traditional IRA, you are going to be taxed on the amount that you pull out based upon the current tax brackets during that time.

00:07:25.199 --> 00:07:26.959
So that's a little bit more risky then.

00:07:27.279 --> 00:07:28.720
What do you mean by risky?

00:07:29.040 --> 00:07:35.759
I mean we don't know what the tax brackets will look like by the time I'm ready to pull that money out.

00:07:36.079 --> 00:07:36.319
Yes.

00:07:36.560 --> 00:07:37.680
That's an accurate statement.

00:07:37.839 --> 00:07:38.000
Okay.

00:07:38.240 --> 00:07:47.920
So one of the draws I would say to a Roth IRA is that you have a little bit more control in regards to you know what taxes are now and you're able to take that out of the equation.

00:07:48.560 --> 00:07:52.720
So you don't have to worry about paying any type of taxes in the future because you're already paying the taxes now.

00:07:52.959 --> 00:07:57.519
With a traditional IRA, what you're actually doing is you're not paying taxes now on that money.

00:07:57.600 --> 00:08:00.319
So it lowers your taxable income for the given year.

00:08:00.800 --> 00:08:12.720
So for example, if you make$50,000 and you contribute$7,000 to your IRA, instead of being taxed on$50,000 worth of income, you're now going to be taxed on$43,000 worth of income.

00:08:12.879 --> 00:08:20.240
So instead of, you know, taking the tax break in the future, with it like as you're doing on the Roth IRA, you're taking advantage of that tax break now.

00:08:20.879 --> 00:08:21.360
All right.

00:08:21.600 --> 00:08:33.360
Now, with a traditional IRA, kind of getting back to what I said a lot of times is not actually mentioned on social media, is that there are income limitations to actually being able to take advantage of that tax deduction when you contribute to a traditional IRA.

00:08:33.679 --> 00:08:44.720
So as a single person, once you make more than$87,000 a year, and as a married person filing jointly, once you make more than$143,000, then you can actually not take that tax deduction.

00:08:45.039 --> 00:08:50.639
So you can put the money into the account, but you can't lower your taxable income like we just talked about.

00:08:50.960 --> 00:08:52.720
And that kind of defeats the purpose.

00:08:53.039 --> 00:08:53.279
Right.

00:08:53.360 --> 00:08:54.879
Because then what does it end up being?

00:08:55.039 --> 00:08:57.039
Like a savings account almost?

00:08:57.279 --> 00:09:00.559
No, it ends up being a non-tax deduction IRA.

00:09:01.600 --> 00:09:01.919
Okay.

00:09:02.240 --> 00:09:10.240
But that is the part that people don't talk about on social because everybody's like, you know, make sure you max out your IRA, max out your IRA.

00:09:10.320 --> 00:09:18.639
But then like if you're over here making X amount of dollars and you don't actually get the tax advantage, then yeah, like you said, what's the point?

00:09:18.879 --> 00:09:19.039
Yeah.

00:09:19.200 --> 00:09:28.799
And there's also one little caveat that I kind of point out here is that um for the traditional IRA, these income limitations are based upon you having access to some type of workplace retirement account.

00:09:28.879 --> 00:09:35.360
Whether that's a 401k plan, 403B, they're kind of once you have those in place, this is when these income limitations come into play.

00:09:35.519 --> 00:09:44.559
But however, if you are employed and you don't have access to a workplace retirement plan, then this doesn't necessarily apply.

00:09:45.919 --> 00:09:46.240
Okay.

00:09:47.519 --> 00:09:52.879
So if I have a 401k through work, then I don't need to worry about an IRA.

00:09:53.200 --> 00:09:54.480
That is not what I said at all.

00:09:54.720 --> 00:09:55.759
That's what I heard.

00:09:56.000 --> 00:10:03.120
If you have a 401k plan through work, what they're saying is that now these income limitations come into play.

00:10:03.279 --> 00:10:16.480
So let's just say hypothetically you're someone who you're single and you're the only person you're worried about, you're a single individual, and you make$90,000 a year, and you also have access to a workplace 401k plan.

00:10:17.120 --> 00:10:21.919
You cannot take advantage of traditional IRA deduction.

00:10:22.879 --> 00:10:24.559
Oh, why do they do that?

00:10:24.879 --> 00:10:26.080
I'm not the IRS.

00:10:26.159 --> 00:10:28.080
I have no answers for you there.

00:10:28.480 --> 00:10:28.799
Okay.

00:10:28.960 --> 00:10:30.399
But I could do a Roth.

00:10:31.200 --> 00:10:31.519
No.

00:10:31.919 --> 00:10:33.679
I can't do any IRA.

00:10:36.000 --> 00:10:37.840
So oh so let me take a step back.

00:10:38.080 --> 00:10:38.320
Sorry.

00:10:38.799 --> 00:10:39.840
You can do a Roth.

00:10:40.000 --> 00:10:40.639
I apologize.

00:10:41.120 --> 00:10:41.919
You can't do a Roth.

00:10:42.159 --> 00:10:46.639
But you just keep jumping back and forth when I'm trying to stay one type of one.

00:10:47.120 --> 00:10:47.360
Okay.

00:10:47.519 --> 00:10:48.080
I'm sorry.

00:10:48.480 --> 00:10:48.799
Yes.

00:10:49.120 --> 00:10:50.639
You can do a Roth though.

00:10:51.200 --> 00:10:51.519
Okay.

00:10:51.840 --> 00:10:58.639
But you cannot do a traditional IRA and take the tax deduction, which is the main benefit of contributing to the traditional IRA.

00:10:58.879 --> 00:10:59.200
Okay.

00:11:00.240 --> 00:11:01.200
Does that make sense?

00:11:01.440 --> 00:11:01.679
Yes.

00:11:01.919 --> 00:11:06.320
Because if you if you have a question, ask me so I can because obviously other people would have the same question.

00:11:08.240 --> 00:11:12.320
Well, I'm just making sure most people have access to a 401k, right?

00:11:12.480 --> 00:11:13.759
Unless you work for yourself.

00:11:14.080 --> 00:11:19.200
So if I am contributing to my 401k, but I And if you work for yourself, you might have a solo 401k plan.

00:11:19.360 --> 00:11:20.080
Okay, sure.

00:11:20.320 --> 00:11:28.080
But I also want to put$7,000 into my IRA or my Roth IRA, I can still do that.

00:11:28.240 --> 00:11:28.480
Yes.

00:11:29.360 --> 00:11:43.679
So the big thing is that you have to make sure that if you have, as a single individual, if you have access to a 401k plan through your employer, you have to make sure one, if you want to contribute to a traditional IRA, that you do not make more than$87,000 a year.

00:11:44.320 --> 00:11:45.120
For 2025.

00:11:45.360 --> 00:11:47.919
Yes, if you want to contribute to contribute to a traditional IRA IRA.

00:11:48.159 --> 00:11:53.519
And as a if you want to contribute to a Roth IRA, you just have to make sure that you don't make more than$161,000.

00:11:54.080 --> 00:12:02.720
I mean, but out of the two options that you presented, I feel like I would want to utilize the Roth IRA and make sure that I'm not getting taxed on any growth, right?

00:12:03.360 --> 00:12:08.559
So, you know, I often think that the Roth IRA can be more beneficial.

00:12:08.799 --> 00:12:13.039
Now, there also could be depending on your situation and what you're trying to do in a given year.

00:12:13.120 --> 00:12:14.639
So there are some nuances there.

00:12:14.799 --> 00:12:21.919
However, I would say that if you're looking at taxes from a historical standpoint for the past 100 years, we are at an all-time low for taxes.

00:12:22.480 --> 00:12:34.320
And in my mind, I would much rather pay taxes now on, you know, the seed rather than waiting to the future where I believe taxes will go up in the future and then having to pay taxes on the harvest.

00:12:34.720 --> 00:12:35.679
So what happens?

00:12:35.919 --> 00:12:39.759
I put my money into the IRA and then when Which IRA?

00:12:40.080 --> 00:12:41.600
The Roth IRA.

00:12:41.840 --> 00:12:44.399
And then I file my taxes.

00:12:44.720 --> 00:12:45.039
Correct.

00:12:45.279 --> 00:12:48.879
And then that's where I'm charged my taxes.

00:12:49.279 --> 00:12:49.600
Correct.

00:12:49.919 --> 00:12:50.320
Where I pay.

00:12:50.559 --> 00:12:50.799
Yes.

00:12:50.960 --> 00:12:51.200
Okay.

00:12:51.519 --> 00:13:02.559
And the ideal scenario is so, like, for example, with your Roth IRA accounts, you are going to receive with either account, Roth IRA or traditional IRA, because even with the traditional IRA, you're contributing to that, your tax deduction comes at the end of the year.

00:13:02.720 --> 00:13:02.960
Okay.

00:13:03.120 --> 00:13:10.159
So you are going to receive a tax form from the whatever brokerage that you decide to open the account with, and you file that with your taxes.

00:13:10.320 --> 00:13:17.519
And that's how the IRS knows, hey, you contributed$7,000 to a Roth IRA or you contributed$7,000 to traditional traditional IRA.

00:13:17.600 --> 00:13:21.679
And based upon your income, you actually qualify for the benefits of either account.

00:13:21.840 --> 00:13:22.159
Okay.

00:13:22.399 --> 00:13:27.039
Do you have any uh brokers that you prefer for either account?

00:13:27.279 --> 00:13:33.200
Well, you well, honestly, first and foremost, I tell individuals, especially if you're doing this yourself, keep it simple for yourself.

00:13:33.279 --> 00:13:35.919
So for example, if your 401k plan is that fidelity.

00:13:36.159 --> 00:13:37.200
Then open another Fidelity.

00:13:37.360 --> 00:13:38.639
Open it, open another Fidelity account.

00:13:38.720 --> 00:13:38.879
Okay.

00:13:38.960 --> 00:13:43.279
It makes it easy from a consolidation standpoint so you don't have accounts at all these different places.

00:13:43.440 --> 00:13:43.679
Yeah.

00:13:43.840 --> 00:13:46.639
Now for me personally, all of you know, all our accounts were Charles Schwab people.

00:13:46.799 --> 00:13:47.519
Charles Schwab.

00:13:47.759 --> 00:13:51.360
Well, my Fidelity is my 401k is with Fidelity.

00:13:51.600 --> 00:13:55.600
But any accounts that we have the option of choosing where we open it, we choose Charles Schwab.

00:13:55.679 --> 00:13:55.759
Yeah.

00:13:55.840 --> 00:14:00.240
Charles Schwab, if you'd like to sponsor the podcast, holla at your girl.

00:14:00.480 --> 00:14:06.080
Like I said, if you already have accounts at one, you know, one brokerage, make it easy for yourself and just keep it all in one place.

00:14:06.320 --> 00:14:06.639
Yeah.

00:14:06.879 --> 00:14:07.200
Okay.

00:14:08.080 --> 00:14:12.000
Um what else do you want to say?

00:14:12.399 --> 00:14:15.039
I mean, as far as like the basics, because you kind of jumped around.

00:14:15.279 --> 00:14:15.759
Yeah, sorry.

00:14:15.840 --> 00:14:17.120
You know how my mind works.

00:14:17.440 --> 00:14:29.200
That is the basics of like how the difference between the Roth and uh the traditional IRA as far as they how they work, and how you also have to be careful as far as making sure that you're following the rules so that you can actually contribute to them.

00:14:29.440 --> 00:14:29.759
Yeah.

00:14:29.919 --> 00:14:35.840
So Roth IRA pay taxes now, traditional IRA to pay taxes later.

00:14:36.080 --> 00:14:36.399
Correct.

00:14:36.559 --> 00:14:39.600
I do have a big question since these are retirement accounts.

00:14:39.919 --> 00:14:43.919
Do we have to wait until a certain age to access our money?

00:14:44.399 --> 00:14:55.919
You do well, so with a Roth IRA, since the money that you're putting into it has already been taxed, you do have access to the contributions that you put into a Roth IRA.

00:14:56.159 --> 00:14:58.639
So any money I've put in, I can take it.

00:14:58.799 --> 00:15:05.679
So let's, you know, just say you've contributed seven thousand dollars to the account, but it has growth on it to eight thousand.

00:15:06.559 --> 00:15:16.799
You have access to the seven thousand that you put in, but you cannot access the additional one thousand of growth prior to being fifty-nine and a half years old without having without incurring a 10% penalty, potentially.

00:15:17.039 --> 00:15:21.120
So I still technically, if I don't want any penalties, have to wait until 59 and a half.

00:15:21.360 --> 00:15:22.399
That's not what I said.

00:15:22.720 --> 00:15:24.879
Except, I mean, any of the growth.

00:15:25.360 --> 00:15:25.919
Oh my gosh.

00:15:26.080 --> 00:15:28.480
Do y'all see what it's like being married to this man?

00:15:28.720 --> 00:15:29.919
That's not what I said.

00:15:30.240 --> 00:15:33.039
You have access to the 7,000 that you put in.

00:15:33.279 --> 00:15:33.679
Yeah, okay.

00:15:33.919 --> 00:15:36.240
But you don't have access to the additional 1,000 of growth.

00:15:36.720 --> 00:15:42.080
Any growth, I need to wait until my retirement age of 59 and a half if I don't want penalties.

00:15:42.320 --> 00:15:42.799
Correct.

00:15:42.960 --> 00:15:44.399
Now is that for both of the accounts?

00:15:44.559 --> 00:15:45.919
No, that's just for a Roth IRA.

00:15:46.799 --> 00:15:53.840
For a traditional IRA, you cannot access any of the money in there prior to being 59 and a half years old without incurring a 10% penalty.

00:15:54.480 --> 00:15:56.639
Because you haven't paid taxes on any of it.

00:15:58.240 --> 00:15:58.559
Okay.

00:15:59.679 --> 00:16:00.000
Man.

00:16:00.799 --> 00:16:01.120
Okay.

00:16:01.600 --> 00:16:07.919
Well, that's also why, you know, taking a step back, that's why I always say it's also important to make sure that you have adequate savings.

00:16:08.000 --> 00:16:20.480
You have an adequate emergency fund because the ideal scenario is that you shouldn't have all this money built up in an IRA or 401k plans and not have money in a savings account as far as a high-while savings account for emergencies.

00:16:20.720 --> 00:16:32.320
Like if you have two or three hundred thousand dollars in, you know, between IRAs and your 401k plan, but you don't have 10,000 in your savings, that's a problem.

00:16:32.559 --> 00:16:32.960
Got it.

00:16:33.279 --> 00:16:38.399
We call that a liquidity problem as far as where your money is and how easily you can access it without any penalties.

00:16:39.200 --> 00:16:46.240
Well, I'm just thinking, I mean, for you and I, we don't want to wait until 59 and a half to quote unquote retire, right?

00:16:46.399 --> 00:16:52.159
But if our money is gonna be in these types of accounts, then where else should we be putting our money besides savings?

00:16:52.480 --> 00:16:55.600
Okay, so you are jumping to a completely different topic.

00:16:56.399 --> 00:16:58.559
And that's not what this episode's about.

00:16:58.799 --> 00:16:59.120
Okay.

00:16:59.919 --> 00:17:00.879
I'll let you have that.

00:17:00.960 --> 00:17:04.559
What else do you want to say about do you dare I ask about the back door?

00:17:05.039 --> 00:17:06.720
We will get we can get to that.

00:17:06.960 --> 00:17:07.200
Okay.

00:17:07.440 --> 00:17:10.319
But as far as like, you know, the breakdown, as far as like the pros and the cons.

00:17:10.960 --> 00:17:11.599
Okay, let's go.

00:17:11.759 --> 00:17:13.839
Brandon wants to talk about the pros and the cons.

00:17:14.079 --> 00:17:14.799
I think it's funny.

00:17:14.880 --> 00:17:17.519
We do uh we do outlines obviously for these episodes.

00:17:17.759 --> 00:17:20.400
And just never I do it, I do the outline.

00:17:21.039 --> 00:17:23.599
And just never tends to actually follow the outline.

00:17:23.839 --> 00:17:32.000
I listen, I'm giving the people what they want and I'm asking the questions that I think people's like people's minds are popping in the same place as mine is.

00:17:32.079 --> 00:17:37.440
So that's how you know this podcast is real and we're not scripted, and we're just going with the flow.

00:17:37.759 --> 00:17:38.880
Off the cuff.

00:17:39.279 --> 00:17:46.319
But um, as far as with the traditional IRA, uh, once again, we said you're putting in money that you haven't paid taxes on.

00:17:46.480 --> 00:17:52.960
It stays in the account and it grows and you don't pay taxes on it while it's in the account, and then you pay taxes on it when you pull it out in retirement.

00:17:53.359 --> 00:17:53.599
All right.

00:17:53.680 --> 00:17:56.960
So one of the pros of that is that you do have that immediate tax deduction.

00:17:57.039 --> 00:18:00.880
So it does lower the amount of taxes that you would pay in the year that you were contributing to it.

00:18:01.119 --> 00:18:01.440
Okay.

00:18:01.599 --> 00:18:02.000
All right.

00:18:02.240 --> 00:18:05.759
And that can be useful for certain people, but it really depends on your situation.

00:18:05.839 --> 00:18:08.000
So I'm not going to say it's good or bad.

00:18:08.160 --> 00:18:10.880
It really depends on your individual situation, to be honest with you.

00:18:11.359 --> 00:18:11.759
All right.

00:18:11.920 --> 00:18:16.640
Um, one of the things that we also have to talk about here is that there are there is something called an RMD.

00:18:16.880 --> 00:18:19.039
Require RMD.

00:18:19.200 --> 00:18:19.440
Okay.

00:18:19.599 --> 00:18:21.200
Require minimum distribution.

00:18:21.599 --> 00:18:22.000
All right.

00:18:22.160 --> 00:18:25.279
Now, what we're thinking about here is because we are talking about retirement planning.

00:18:25.359 --> 00:18:29.279
So we have to think about what is our life going to potentially be like when we get to retirement.

00:18:29.920 --> 00:18:36.720
So an RMD is basically the IRS's way of saying, hey, you have all this money in an account that you haven't paid taxes on.

00:18:37.200 --> 00:18:40.799
We want you to start pulling some of that money out because we want our money.

00:18:40.880 --> 00:18:41.759
We want our taxes.

00:18:42.319 --> 00:18:42.720
All right.

00:18:42.960 --> 00:18:46.400
So at the age of 73, you have to start paying these RMDs.

00:18:46.559 --> 00:18:47.359
And it's calculated.

00:18:47.599 --> 00:18:53.200
I'm not, there's a specific calculation that they do based upon how much money you have in the account and stuff of that nature.

00:18:53.359 --> 00:19:01.920
But just know that at 73, even if you don't need the money out of that account, the traditional IRA, they are going to require you to start pulling money out.

00:19:02.000 --> 00:19:05.599
And it's a specific amount that you need to pull out each year based upon that calculation.

00:19:05.759 --> 00:19:10.319
And if you don't do that, then they will penalize you a hefty penalty on it.

00:19:10.559 --> 00:19:13.680
So what I'm hearing is I should pull all my money out at 59 and a half.

00:19:13.839 --> 00:19:15.039
That's not what I said again.

00:19:15.920 --> 00:19:18.880
Well, I don't want somebody to force me to take my money.

00:19:19.119 --> 00:19:21.680
So the re okay, I'm going to address your question.

00:19:21.759 --> 00:19:22.000
All right.

00:19:22.319 --> 00:19:22.559
Thank you.

00:19:22.799 --> 00:19:30.319
So let's just say that you have a million dollars in an IRA by the time you reach 60.

00:19:30.640 --> 00:19:30.960
Sure.

00:19:31.119 --> 00:19:31.599
All right.

00:19:31.839 --> 00:19:38.720
If you don't need a million dollars, you don't want to pull a million dollars out of your IRA and pay taxes on that all at one time.

00:19:39.039 --> 00:19:42.400
Considering, for example, like to say you only needed$100,000 to live off of.

00:19:42.640 --> 00:19:44.559
$100,000, a million.

00:19:44.720 --> 00:19:46.000
Two very different tax brackets.

00:19:46.240 --> 00:19:47.039
Okay, okay.

00:19:47.279 --> 00:19:47.920
Valid.

00:19:48.480 --> 00:19:50.079
So that's why you wouldn't do that.

00:19:50.319 --> 00:19:50.799
Got it.

00:19:50.960 --> 00:19:52.240
But that makes perfect sense.

00:19:52.400 --> 00:19:53.920
Thank you for saying that.

00:19:55.039 --> 00:19:57.680
But it is something to keep in mind when it comes to the planning aspect.

00:19:57.759 --> 00:20:07.359
And that's what I say, that's why I also tell people that it's really important to work with a professional when you're starting to do these things because RDs really aren't something on someone's radar.

00:20:07.839 --> 00:20:13.519
And it could end up being that you know, there are things that we can put in place to help mitigate.

00:20:13.599 --> 00:20:19.680
You know, I'm not gonna say if you have a substantial amount of money, you're probably not gonna maybe eliminate all of the RMDs, but you can definitely mitigate it.

00:20:19.839 --> 00:20:20.079
Okay.

00:20:20.240 --> 00:20:24.960
And that's one of those things that as an individual, when people are kind of DIYing it, it's often not on their radar.

00:20:25.200 --> 00:20:26.319
Until you get fined.

00:20:26.720 --> 00:20:29.839
Well, well, until you just get to the point and then you're like, oh, I gotta take out this money.

00:20:29.920 --> 00:20:30.319
I don't want to pay.

00:20:30.559 --> 00:20:34.480
And what happens with the DIY person is like, I don't need this money, I don't want to pay taxes on it.

00:20:34.960 --> 00:20:35.519
Sorry.

00:20:35.680 --> 00:20:37.200
That's just the way the IRS works.

00:20:37.440 --> 00:20:37.759
Got it.

00:20:37.920 --> 00:20:38.400
All right.

00:20:38.559 --> 00:20:46.319
Now, moving on to the Roth IRA, one of the benefits here is that you are now paying taxes on the money that's going into the account.

00:20:46.960 --> 00:20:51.680
So you don't have to worry about paying taxes later because the money goes into the account after you've already paid taxes on it.

00:20:51.839 --> 00:20:54.640
While it's in the account, it grows without paying taxes.

00:20:54.799 --> 00:20:57.839
And then when you pull it out, you don't have to pay taxes on any of the growth.

00:20:58.400 --> 00:21:00.319
So that is a huge benefit, you know.

00:21:00.480 --> 00:21:04.640
Now, granted, one of the cons of that is that you're not getting a tax deduction today.

00:21:04.799 --> 00:21:05.039
Right.

00:21:05.200 --> 00:21:07.839
But in all honesty, you have to kind of weigh out your own personal situation.

00:21:07.920 --> 00:21:12.400
Does it make is it more of a benefit to have a you know tax deduction now or in the future?

00:21:12.640 --> 00:21:24.720
Now, one of the reasons that sometimes you may hear, like, hey, go ahead and take your tax deduction today, because you'll actually be in a lower tax bracket in the future and they pay less taxes in the future, is a common thing that you'll hear.

00:21:25.039 --> 00:21:26.400
I don't know if that's true.

00:21:26.720 --> 00:21:28.240
Yeah, we don't live in the future.

00:21:28.400 --> 00:21:32.559
Yeah, so we're also or also we're in a historically low tax environment.

00:21:33.279 --> 00:21:42.799
So I don't think that we can continue in this low tax environment and you know, without adding more, obviously, to the national debt of the US.

00:21:43.039 --> 00:21:43.359
Right.

00:21:43.599 --> 00:21:45.279
So I think things are going up to change.

00:21:45.359 --> 00:21:55.200
You are going to see taxes go up and kind of give you a frame of reference, you know, like in the like 50s and stuff like that, 40s and 50s, you know, the highest like marginal tax bracket was like in the 90s.

00:21:55.440 --> 00:21:56.079
That's insane.

00:21:56.319 --> 00:21:58.079
But I mean, like, that's the marginal tax bracket.

00:21:58.160 --> 00:22:02.400
So you're making that only a certain portion of wealthy people's income is taxed at that amount.

00:22:02.559 --> 00:22:05.599
But that just lets you know that like right now, the highest tax bracket is 37%.

00:22:06.079 --> 00:22:06.400
Right.

00:22:06.720 --> 00:22:07.440
Huge difference.

00:22:07.680 --> 00:22:08.000
Big.

00:22:08.240 --> 00:22:22.240
So, like I said, I prefer to, whenever I'm doing whenever I'm doing planning with a client or with our own money, if there's things that I can control, I want to control as much as possible because so much of planning is the unknown because it's in the future and we don't know what's going to happen.

00:22:22.400 --> 00:22:24.000
We don't know how things are going to change.

00:22:24.160 --> 00:22:26.960
But if I have something that I can control, I like that.

00:22:27.119 --> 00:22:28.960
And so I really prefer the Roth.

00:22:29.200 --> 00:22:36.640
So I like utilizing that aspect because I can I know today exactly what taxes I'm going to pay, and I could take that part off the table.

00:22:36.720 --> 00:22:36.960
Yeah.

00:22:37.039 --> 00:22:42.960
Now, one of the benefits with the Roth IRA is that we were talking about with the RMDs to require minimum distributions for a traditional IRA.

00:22:43.039 --> 00:22:49.359
That doesn't exist for a Roth IRA because you've already paid taxes on the amount going in and you're not taxed on any of it coming out.

00:22:49.440 --> 00:22:52.480
So the government's gotten all the taxes that they're going to get from that account.

00:22:52.799 --> 00:22:53.920
I just had a question.

00:22:54.160 --> 00:22:54.400
Okay.

00:22:54.640 --> 00:22:57.359
Can I have a Roth and a traditional IRA?

00:22:57.599 --> 00:22:58.079
You can.

00:22:58.319 --> 00:23:06.160
Now the thing is that you only have the maximum contribution amount of$7,000 for the year.

00:23:06.319 --> 00:23:10.480
That could be$7,000 into the Roth IRA and zero into the traditional.

00:23:10.799 --> 00:23:12.160
Oh, it's$7,000 total.

00:23:12.400 --> 00:23:12.640
Total.

00:23:13.200 --> 00:23:13.440
Total.

00:23:13.680 --> 00:23:14.000
Regardless.

00:23:14.480 --> 00:23:17.359
So you could do$7,000 into one account and zero into the other.

00:23:17.519 --> 00:23:23.519
You could do$3,500 into each, but between the two accounts, you cannot contribute more than$7,000 in total.

00:23:23.839 --> 00:23:25.279
Oh, interesting.

00:23:25.519 --> 00:23:25.839
Okay.

00:23:26.319 --> 00:23:26.880
All right.

00:23:27.200 --> 00:23:32.319
So I guess the same pros and cons then apply no matter how you split up the$7,000.

00:23:32.880 --> 00:23:33.359
Correct.

00:23:33.519 --> 00:23:39.599
And like I said, um, one of the cons, obviously, with the Roth IRA is that it does have income limitations.

00:23:39.920 --> 00:23:44.480
But now we can't talk about there are ways to get around that.

00:23:44.720 --> 00:23:45.599
Ooh, okay.

00:23:45.839 --> 00:23:46.160
All right.

00:23:46.240 --> 00:23:47.200
So we can talk about it.

00:23:47.279 --> 00:23:49.519
One of the things that you mentioned was a backdoor Roth.

00:23:50.000 --> 00:23:55.680
And before I even go into this, why does this backdoor Roth option exist?

00:23:56.079 --> 00:23:56.799
I don't know.

00:23:56.960 --> 00:23:58.319
I don't know why they do it this way.

00:23:58.640 --> 00:24:08.480
But basically what it is is that once you reach that, you know, max once you have make more than that maximum income limit to contribute directly to the Roth IRA, you have to do an extra step.

00:24:08.720 --> 00:24:12.400
So the extra step is that you would have a traditional IRA opened up.

00:24:12.880 --> 00:24:15.519
So let's just say we're contributing$100 a month.

00:24:15.759 --> 00:24:18.319
You put$100 into the traditional IRA.

00:24:18.559 --> 00:24:19.680
You don't invest it though.

00:24:19.839 --> 00:24:21.440
Don't invest in the traditional IRA.

00:24:21.599 --> 00:24:27.759
What you'll immediately do is then convert from the traditional IRA that$100 to the Roth IRA.

00:24:27.920 --> 00:24:28.240
Okay.

00:24:28.480 --> 00:24:28.880
All right.

00:24:29.039 --> 00:24:37.519
So it's going from your bank account to the traditional IRA, convert it to the Roth IRA, and then you can invest it in the Roth IRA.

00:24:37.680 --> 00:24:42.880
And what you'll do at the end of the year is that you'll have to pay the taxes on the$100 that you can you converted.

00:24:43.599 --> 00:24:50.880
So what's the benefit of doing that instead of just that's the same thing as a well, it's the that's the only way if you want to utilize a Roth IRA.

00:24:51.680 --> 00:24:53.920
So it's the same, it's gonna be the same benefit.

00:24:54.160 --> 00:24:58.880
Because you've already paid that$100 once you're because like I said, you're gonna be taxed on at the end of the year.

00:24:58.960 --> 00:25:02.079
So you're putting money in that you've already paid taxes on.

00:25:03.039 --> 00:25:07.279
The IRS just makes you do one extra step if you make a certain amount of money.

00:25:08.720 --> 00:25:11.279
But you still can't contribute more than the$7,000.

00:25:11.519 --> 00:25:18.160
No, everybody, no matter how much money you make,$7,000 is the is the max for the backdoor Roth IRA.

00:25:18.559 --> 00:25:18.880
Okay.

00:25:19.279 --> 00:25:20.240
Interesting.

00:25:20.559 --> 00:25:22.240
Why is that interesting?

00:25:23.359 --> 00:25:24.799
That's your brain going.

00:25:25.119 --> 00:25:26.720
I know, but I don't want to confuse the people.

00:25:27.200 --> 00:25:27.599
It's okay.

00:25:28.000 --> 00:25:30.160
Ask the question because it might be the same question that they have.

00:25:30.400 --> 00:25:38.319
Well, so I'm I'm trying to make sure that I understand that the reason you do the back door is because you are exceeding the income limit for the Roth.

00:25:38.559 --> 00:25:39.759
That's the only reason you do the backdoor.

00:25:39.920 --> 00:25:40.079
Okay.

00:25:40.240 --> 00:25:41.680
That's what a backdoor Roth is for.

00:25:41.759 --> 00:25:47.039
The purpose of the backdoor Roth is for people who make too much money to contribute directly to the Roth.

00:25:47.279 --> 00:25:48.240
To a Roth IRA.

00:25:48.480 --> 00:25:48.720
Got it.

00:25:48.799 --> 00:25:50.000
So then they open the traditional.

00:25:50.480 --> 00:25:51.759
And you have one extra step to do.

00:25:52.400 --> 00:25:53.759
And then they move the money.

00:25:54.000 --> 00:25:54.319
Okay.

00:25:54.960 --> 00:25:56.960
And why does that why do you have to do that?

00:25:57.119 --> 00:25:58.400
I don't have a reason for you.

00:25:58.480 --> 00:25:59.200
I have no idea.

00:25:59.519 --> 00:25:59.759
Okay.

00:26:00.000 --> 00:26:02.319
I think I unless they don't even I don't know.

00:26:02.559 --> 00:26:05.519
Well, people make it sound so complicated, but it really doesn't.

00:26:06.000 --> 00:26:08.400
Um, well, here's the thing is that people can mess it up.

00:26:08.640 --> 00:26:08.960
Okay.

00:26:09.119 --> 00:26:10.480
What part would they mess up?

00:26:10.720 --> 00:26:11.039
All right.

00:26:11.200 --> 00:26:18.799
So what I've seen people do is that they sometimes forget that they contributed the money to the traditional.

00:26:19.200 --> 00:26:23.440
Oh, and then so it comes to the end of the year, they actually didn't do the conversion.

00:26:23.839 --> 00:26:24.000
Okay.

00:26:24.400 --> 00:26:25.440
So they just didn't do it.

00:26:25.599 --> 00:26:29.839
So now you have um a certain amount of money, you you have like, say, you max it out.

00:26:29.920 --> 00:26:34.319
You have$7,000 sitting in a traditional IRA that more than likely you didn't invest.

00:26:35.039 --> 00:26:43.519
But then also you can't even take the deduction because you pro if you're doing a backdoor Roth IRA, you make too much money to even take the deduction of a traditional IRA.

00:26:44.240 --> 00:26:52.079
Um, another one I've seen is that unfortunately sometimes people get confused and they invested in the traditional IRA, and now they have growth on that.

00:26:52.240 --> 00:27:03.359
And then just make a long story short, now you have a bunch of issues in regards to trying to convert that over and making sure that you're doing everything right to satisfy the IRS's um, from the IRS's view, paying taxes on things.

00:27:03.599 --> 00:27:14.240
The most clean way is to contribute the money to the traditional IRA and immediately convert it over to the Roth and then invest it on the Roth side.

00:27:14.640 --> 00:27:14.960
Okay.

00:27:15.279 --> 00:27:15.920
All right.

00:27:16.960 --> 00:27:17.279
Okay.

00:27:18.079 --> 00:27:20.960
What what else do you want to say about these?

00:27:22.640 --> 00:27:25.039
Um well do you have any questions?

00:27:25.200 --> 00:27:29.920
Because like I know how it it can be difficult to understand at some point.

00:27:30.160 --> 00:27:32.240
And I feel like you have a much better, you know.

00:27:32.559 --> 00:27:35.920
No, I think Roth, I pay the taxes now and not on the growth.

00:27:36.000 --> 00:27:37.920
Traditional, I pay the taxes later.

00:27:38.079 --> 00:27:39.920
They're both retirement accounts.

00:27:40.240 --> 00:27:49.519
So I need to wait until 59 and a half to access all the money, but I can access anything that I've contributed ahead of my 59 and a half.

00:27:49.599 --> 00:27:50.880
So it seems pretty basic.

00:27:51.200 --> 00:27:54.880
So for those people out there, how do you decide which one is for you?

00:27:55.680 --> 00:27:58.720
And I'm gonna kind of like stray from like the rule of thumb.

00:27:58.799 --> 00:28:04.400
I'm gonna tell you what the rule of thumb is, but then I'm gonna explain to you why I don't think that you should always follow the rule of thumb.

00:28:04.640 --> 00:28:17.039
So the normal rule of thumb is that if you are in a higher, if you have a higher income, go ahead and um you're in a higher tax bracket, go ahead and actually do the traditional IRA.

00:28:17.359 --> 00:28:18.960
At which point in the tax bracket.

00:28:19.359 --> 00:28:22.880
But the funny part is that which tax bracket.

00:28:23.519 --> 00:28:26.960
Like if you're in which tax bracket would you recommend that the traditional?

00:28:27.200 --> 00:28:33.359
So the funny part is that like the funny part is that that's a rule of thumb when it comes to just pre-tax money.

00:28:33.759 --> 00:28:38.720
But it doesn't even necessarily apply to the IRA because you can't even take the deduction once you have a high income.

00:28:39.119 --> 00:28:39.759
Yeah.

00:28:40.240 --> 00:28:40.799
Hmm.

00:28:41.039 --> 00:28:42.240
Fishy, fishy.

00:28:42.480 --> 00:29:01.680
And then you have the other the opposite is that when you're a Roth, like if you're in a lower income tax bracket, then go ahead and pay the taxes now because more than likely, even in years later on into the future when you're still in your working years, you'll be in a higher tax bracket, and maybe you don't want to do it then, because once again, you're falling into that same rule of thumb that they use for the traditional.

00:29:02.000 --> 00:29:09.359
Now, I'm gonna also elaborate on this kind of to the 401k plan for a moment, only because that has no income limitations.

00:29:09.599 --> 00:29:10.160
All right.

00:29:10.400 --> 00:29:18.559
So some the rule of thumb being like, you know, if you're in a high income, so let's just say you're in the highest tax bracket, let's say you make$500,000 a year.

00:29:18.799 --> 00:29:19.200
All right.

00:29:20.000 --> 00:29:26.400
Um may believe that you should do traditional, the pre-tax because it lowers your taxable income.

00:29:26.559 --> 00:29:26.880
Okay.

00:29:27.039 --> 00:29:29.359
So you you don't have to pay taxes for it then.

00:29:29.519 --> 00:29:33.920
But the idea is that when you're in retirement, that you'll probably be taking in less money.

00:29:34.160 --> 00:29:34.480
Right.

00:29:34.720 --> 00:29:35.200
All right.

00:29:35.359 --> 00:29:39.039
So in retirement, you'd pay less taxes because you're making less money.

00:29:39.599 --> 00:29:42.480
I honestly don't think that's the case for our generation.

00:29:42.960 --> 00:29:46.880
I honestly believe that, you know, like I said, I'm 42, you're 40.

00:29:47.200 --> 00:29:57.519
I think if you're making$500,000 right now and that's what your family's really living off of, I find it hard to believe that you're not going to be living off of$500,000 20 years from now.

00:29:57.759 --> 00:30:03.279
Especially given, you know, how Tax brackets and might cost of living, yeah, stuff of that nature.

00:30:03.359 --> 00:30:05.519
So I I don't necessarily think that's the case.

00:30:05.839 --> 00:30:10.240
Well, because people are saying, like, oh, you usually need less in retirement, right?

00:30:10.400 --> 00:30:12.559
Because like your kids are out of the house, you're not paying for extra.

00:30:14.000 --> 00:30:14.480
Historically.

00:30:14.640 --> 00:30:19.119
So all that conversation is based off of previous generations.

00:30:22.319 --> 00:30:23.359
Previous generations.

00:30:23.440 --> 00:30:27.200
We are seeing, you know, people not nearly as many people are owning homes.

00:30:27.440 --> 00:30:32.400
So the idea of like, hey, my mortgage is going to be paid off and I have to worry about it.

00:30:32.960 --> 00:30:37.839
You might still have rent because you have a lot more people renting now because the housing prices are ridiculous.

00:30:38.079 --> 00:30:38.480
Yeah.

00:30:38.799 --> 00:30:40.559
So you got to take into account a lot of things.

00:30:40.640 --> 00:30:47.599
Like we're in a really weird time frame because a lot of the, you know, kind of the tried and tested truths of the previous generations don't apply.

00:30:47.759 --> 00:30:49.200
Aren't going to apply to us.

00:30:49.759 --> 00:30:51.039
Well, great.

00:30:51.519 --> 00:30:54.400
So like I'm we need a lot of money in retirement, is what I'm hearing.

00:30:54.720 --> 00:30:59.599
For me, once again, I like to everything that I can control, I want to control that.

00:30:59.759 --> 00:31:05.119
So I know what my tax um um obligation is today, I'm going to take care of that.

00:31:05.200 --> 00:31:06.880
So I don't have to worry about it in the future.

00:31:07.119 --> 00:31:07.440
Right.

00:31:07.599 --> 00:31:16.720
And you like I said, with the 401k plans, um, a lot of people now with 401k plans do have access to Roth within their 401k plans, and there's no income income limitations there.

00:31:16.880 --> 00:31:23.680
So these income limitations that exist for IRAs, Roth and traditional, do not exist at all when it comes to your 401k plan.

00:31:23.839 --> 00:31:35.200
So if you make a lot of money and you normally can't contribute to a Roth IRA and you don't want to have to worry about maybe the extra step of the uh backdoor Roth IRA, use Roth 401k contributions.

00:31:35.440 --> 00:31:35.759
Okay.

00:31:36.000 --> 00:31:36.400
All right.

00:31:36.559 --> 00:31:38.640
And then also I'm gonna like give like one more extreme.

00:31:39.039 --> 00:31:43.839
I know this is an extreme scenario, and like all of us wish that we could be in the scenario, but I do have clients that make a lot of money.

00:31:43.920 --> 00:31:46.480
You know, I have a client that makes over$800,000 a year.

00:31:46.720 --> 00:31:50.079
And even if you cut his income in half, he's still gonna be the highest tax bracket.

00:31:50.160 --> 00:31:50.319
Yeah.

00:31:50.480 --> 00:31:54.160
So it doesn't even make sense for him to try to even like it doesn't make sense to save money now.

00:31:54.240 --> 00:32:02.880
Like go ahead and take care of the taxes because you're just gonna have a larger tax obligation in the future, also, because now you're paying taxes on the contributions and the growth.

00:32:03.039 --> 00:32:03.680
Yeah.

00:32:04.000 --> 00:32:18.720
So I was like, like you really gotta like, I honestly believe like if you're working, if you're like around our age, 100% there are advisors that are older, you know, 60s, maybe even 70s, that can think this way.

00:32:18.880 --> 00:32:29.279
Because I listen to them, I know some you know resources where there's people that are older and they're thinking this way because things are changing for our generation and it's not gonna be the same as it was for our parents and our grandparents.

00:32:29.519 --> 00:32:33.680
But there can be a benefit to working with an advisor that's closer to your age.

00:32:33.920 --> 00:32:42.559
Reason being is that they have a better understanding of exactly what you're going through as an individual and how you're going to plan for the future that is very different than how your parents or your grandparents had a had a plan.

00:32:42.720 --> 00:32:43.039
Mm-hmm.

00:32:43.200 --> 00:32:50.079
Yeah, our parents and grandparents who have pensions after working at the same job for 30 years and all the things.

00:32:50.880 --> 00:32:51.359
Yeah.

00:32:51.680 --> 00:32:52.000
Okay.

00:32:52.400 --> 00:32:54.799
Well, I think I'm gonna stick with Team Roth.

00:32:55.279 --> 00:32:58.079
Um, but y'all do you, you know, you do you, boo.

00:32:58.160 --> 00:32:59.680
I'm gonna do me, I'm gonna do the Roth.

00:33:00.160 --> 00:33:10.559
Yeah, like I said, there are scenarios where it 100% makes you know sense to do, you know, if you make a certain amount of money to do the traditional IRA over the Roth, but it really depends on your specific situation.

00:33:10.640 --> 00:33:18.799
You really gotta look at one, like what are you trying to achieve in a given year, and also take into account the entire planning that you're doing for the future.

00:33:19.359 --> 00:33:19.599
Okay.

00:33:20.640 --> 00:33:34.559
Well Oh, I do want to point out one more thing that we were talking about, and you know, far from a planning standpoint, one of the things that's the benefit also, once again of the Roth IRA, is that you do have access to the uh contributions, the principal that you put in.

00:33:35.119 --> 00:33:39.440
And that could be beneficial for people who want to retire before 59 and a half years old.

00:33:39.839 --> 00:33:54.240
Because if you're wanting to retire early, but all your money's going into a pre-tax for a tradition for a pre-tax for a 401k plan, and then you know you have uh traditional IRAs, I hate to tell you, you're gonna you could run into some problems.

00:33:54.400 --> 00:34:11.039
Now, there are some other things that you can, you know, kind of do to help mitigate some of those things, and that's not the focus of this episode, but overall, you would be you would it would benefit you to start to build a bucket that you can ask access prior to 59 and a half without any issues and not have to worry about penalties on that bucket.

00:34:12.400 --> 00:34:13.840
Yeah, I want all my money.

00:34:14.400 --> 00:34:15.280
Well, yeah.

00:34:15.760 --> 00:34:17.360
As quickly as possible, please.

00:34:17.440 --> 00:34:17.920
Thank you.

00:34:18.639 --> 00:34:19.599
Okay, great.

00:34:19.760 --> 00:34:21.039
Hopefully this was helpful.

00:34:21.199 --> 00:34:38.400
Um, if you do want to dive into your 401k options as well, since you did touch on that, we will link our episode that was all about 401ks and making sure that that's set up properly because as Brandon stated, you have Roth pre-tax and after tax options.

00:34:38.559 --> 00:34:40.800
Those are not the same, it's three different options.

00:34:40.880 --> 00:34:42.480
So we detail that in that episode.

00:34:42.559 --> 00:34:43.599
So dive in there.

00:34:43.840 --> 00:34:49.119
Uh, but hopefully this was helpful in helping you understand the Roth and traditional IRAs.

00:34:49.440 --> 00:34:57.039
Share with a friend and then go check your stuff so that you can actually see where you're putting your money and making sure that you're following the rules.

00:34:57.199 --> 00:35:00.320
Cause I don't know about you, but orange is not my color.

00:35:00.480 --> 00:35:03.440
So all right, we'll talk to y'all soon.

00:35:03.679 --> 00:35:09.119
Don't forget, Benjamin Franklin said an investment in knowledge pays the best interest.

00:35:09.360 --> 00:35:10.559
You just got paid.

00:35:10.800 --> 00:35:11.599
Until next time.

00:35:11.920 --> 00:35:13.599
Sugar Daddy podcast, yo.

00:35:14.079 --> 00:35:16.320
Learn how to make the pockets grow.

00:35:16.559 --> 00:35:18.559
Find mental freedom, spare week, bro.

00:35:19.119 --> 00:35:21.119
Smart investments, money flow.

00:35:21.679 --> 00:35:23.599
Thanks for listening to today's episode.

00:35:23.760 --> 00:35:26.639
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00:35:26.800 --> 00:35:34.800
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00:35:35.039 --> 00:35:39.199
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00:35:39.360 --> 00:35:50.400
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00:35:53.440 --> 00:35:56.639
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00:35:56.719 --> 00:36:04.639
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