Comparing Investment Accounts: Roth vs. Traditional

The Roth vs. Traditional debate isn't about which is "better." It's about timing your tax brackets. Here's how to decide: Analyze Your Current Tax Bracket  • Below 24%? Consider Roth  • Above 32%? Consider Traditional  • In between? Mix strategies  • Always get employer match first Project Future Income  • Planning to make more? Roth now  • Income likely to drop? Traditional now  • Expecting similar income? Split contribution  • Consider retirement income sources Strategic Opportunities  • Low income year? Roth conversion  • Market down? Perfect conversion timing  • Real estate losses? Offset conversion taxes  • Job transition? Consider timing Key Insight: You don't have to choose one or the other. The real power is in strategic timing of both. Example:  • Traditional during peak earning years  • Roth during early career  • Conversions during market dips  • Mix during transition years Stop asking which is better. Start asking when each makes most sense.

📢 It's MISCONCEPTION MONDAY! Today's topic: Roth accounts. In many 401(k) plans, you can choose between traditional (tax-deferred) or Roth contributions. You also have the choice in IRA's. What's the difference? ▶️ Traditional: dodge tax now, pay tax when you withdraw ▶️ Roth: pay tax now, tax free when you withdraw Many people (including radio personalities) parrot... 🦜 Roth! Roth! Always Roth! Roth is always best! *SQUAWK!!!* But that's one-size-fits-all advice from someone who doesn't know the unique details of your situation. Would you take a prescription from a doctor who knows nothing about you? 💊 "Winging it" and getting the Roth vs. Traditional decision wrong can sometimes mean overpaying by 2-3x the tax rate! 🤔 In general - you want to pay tax at the lowest rate possible. KEEP IN MIND: 👉 Your working tax rate is determined by your salary/income. 👉 Your retirement tax rate can be engineered. It's determined by your living expenses and what your income sources are (Social Security, traditional withdrawals, Roth withdrawals, etc.) Many people retire in a lower tax bracket than when they were working. Factors to consider 👇 → Income (and tax bracket) now → Legacy and charitable giving goals → Do you expect any lower income years? → Income sources (and tax bracket) in retirement → Will you be retiring early... before age 59.5 or after? → Current balance of traditional / Roth / taxable assets → Time between retirement and RMD's (forced withdrawals) "But tax rates have to increase!" Yes, there's the possibility tax rates may go up between now and the time you retire. However - even if tax rates increase, your *personal tax rate* can still be lower in retirement. Are tax rates likely to go up by... (1.5x, 2x, 3x) ? There's also a possibility Roth accounts are taxed in the future. 🤷♂️ Control what you can control and do the math to see which is the best approach - 𝙛𝙤𝙧 𝙮𝙤𝙪. ------------ I'm Allen Mueller, a financial advisor who helps Aerospace & Tech professionals build wealth, win the tax game, and make work optional. If you want your money to work as hard as you do → Visit my website to book a complimentary meeting! **This post is general education, not financial advice.**

💡 Roth IRA vs. Traditional IRA: What's the Difference? 💡 When it comes to saving for retirement, IRAs (Individual Retirement Accounts) are a powerful tool. But if you're deciding between a Roth IRA and a Traditional IRA, it’s important to understand the key differences—and how each option impacts your taxes and future retirement savings. 🏦 Here’s a quick breakdown: A. Traditional IRA: - Tax Benefits: Contributions are tax-deductible in the year you make them, which can lower your taxable income. - Tax on Withdrawals: When you withdraw in retirement, your money is taxed as ordinary income. - Required Minimum Distributions (RMDs): You must begin taking RMDs at age 73. - Eligibility: Contributions are limited by income, but you can contribute at any age as long as you have earned income. B. Roth IRA: - Tax Benefits: Contributions are made with after-tax dollars (no immediate tax deduction). - Tax-Free Withdrawals: Qualified withdrawals in retirement are tax-free (including earnings). - No RMDs: You are not required to take RMDs during your lifetime. Eligibility: Contributions are limited by income; higher earners may not be eligible to contribute directly. Key Decision Factors: 1) Tax Strategy: If you expect to be in a higher tax bracket in retirement, a Roth IRA might be beneficial for tax-free withdrawals. On the other hand, if you want to reduce your taxable income now, a Traditional IRA might be the way to go. 2) Withdrawal Flexibility: A Roth IRA provides tax-free access to your contributions anytime (subject to conditions), making it more flexible if you need funds before retirement. **The due date to fund an IRA for 2024 is April 15th, so don't delay!** 💡 Tip: Consider talking to a financial advisor to determine which IRA is best suited for your long-term financial goals! #RetirementPlanning #RothIRA #TraditionalIRA #TaxPlanning #Investing #FinancialTips