Roth IRA vs 401k (WHICH TO PRIORITIZE?)

with income taxes in the u.s. around 30% just investing with the right account gives your investments a 30% head start so making the most of 401ks and Roth IRAs it really is the number one way to set yourself up for investing success from the start what is up everyone I'm rose and welcome back to my channel the number one place for financial education empowerment and inspiration Roth IRA vs. 401k which is better for you and which account should you use to invest with I personally have a lot of experience with both of these accounts so I have a lot of valuable insights to share with you well you'll learn in today's video is gonna save you tens of thousands if not hundreds of thousands of dollars this is not an exaggeration because taxes are going to be your single biggest expense in your lifetime according to Forbes someone who makes $100,000 a year can expect to pay over seven hundred sixty thousand dollars in taxes over their lifetime and if adjusted for inflation that's over 1.4 million dollars so it makes sense to try to reduce your taxes as much as possible because the less you pay in taxes the more money you get to keep to save and invest in Roth IRAs and 401ks are powerful ways to build a sizeable nest egg fast so in this video I'm going to first give you some background info on the Roth IRA and the 401k then I'll explain the pros and cons of each account and finally I'll make some clear recommendations on which one you should prioritize so if that sounds good to you give this video a like and let's get right into it let's start off with some basic background info the Roth IRA is named after senator William Roth who sponsored the part of the US tax code that brought the Roth IRA into existence the Roth is a type of retirement account that offers huge and I mean huge tax benefits with a Roth IRA you make contributions that are not tax deductible so it's with after-tax money however all of your investment profits and earnings in your Roth IRA are tax-free forever no matter how much your investments have gone up in value let me put this into perspective if you had $10,000 in a Roth IRA 30 years ago and you invested all of it into Apple then you'd have over 13 million dollars today without the Roth IRA you'd probably owe about 4 million dollars in taxes when you take the money out ouch but thanks to the Roth you get to withdraw all 13 million dollars tax-free zero taxes however there's no such thing as a free lunch especially when it comes to the IRS so the Roth IRA also comes with restrictions you're not supposed to make withdrawals of profits from your Roth IRA until you turn 59 and a half that's because it's designed for retirement and if you do withdraw money early then you'll incur a lot of taxes and penalties so basically it's not an option the 401 K is also a type of retirement account and it's named after section 401 K of the IRS tax code I know so creative right so the 401 k plan is a type of investment account that's sponsored by your employer and unlike Roth IRAs your contributions to a 401 K are tax deductible in other words any money you put into a 401 K is pre-tax money however all your withdrawals later on from your 401 K are going to be fully taxable at regular income tax rates so the main difference between the two is in timing of the tax benefit with Roth IRA contributions you get no tax benefit upfront because it's with after-tax money but you get unlimited tax benefits in retirement with 401ks you get the tax deduction today but later on when you withdraw money in retirement you're gonna pay regular income taxes on every withdrawal so now that we've covered the basics of the Roth IRA and the 401 K let's take a look at the pros and cons of each one of the biggest pros of the Roth is that you're guaranteed a tax-free retirement no matter what even if you become a bajillion heir in the highest tax bracket you will never have to pay any taxes on anything in your Roth IRA not only this but us marginal tax rates have been as high as 94 percent in the past during World War Two in the 1940s if taxes been that high in the past then they can maybe get that high again in the future who knows god forbid we get into a war and they need to pay for it somehow taxes might go up to 94 percent again can you imagine so I don't know about you but I would never want to expose my retirements this kind of political uncertainty other pros of the Roth IRA you can take out contributions penalty-free so if you put in six thousand dollars into your Roth IRA this year tomorrow or the following day you can take it right back out because it was all after-tax so it's basically like it's not really restricted money the only thing you can't withdraw is investment earnings and profits on those contributions but any any of your original principal that you contribute to a Roth IRA you can take back out whenever you want another pro of the Roth IRA is that you essentially have unlimited investment options unlike most 401ks which typically only give you a limited menu of mutual funds to choose from with a Roth IRA you can really just buy anything you want stocks ETFs mutual funds bonds literally anything is game for more ideas on how to invest the money in your Roth IRA make sure to download my Roth IRA investing starter kit it's an awesome PDF resource that I've created specifically for Roth IRA investors and it's full of actionable tips and step-by-step instructions on how to put the money in your Roth IRA to work so I've dropped the link to download it right below in the description box so click the link it's right below this video and you can download it and get it right away and now for some of the cons of the Roth IRA the Roth has a six thousand dollar annual contribution limit which isn't that much if you have more money to put away for your future if it were allowed I dash away as much as humanly possible in my Roth IRA but the IRS only allows up to six thousand dollars per year another con is that the Roth IRA doesn't give you any tax deduction today as we talked about all your contributions are gonna be with after-tax money but the Roth IRA does give you a bunch of tax benefits later in life however it doesn't reduce your tax bill today so that can be a con for some people finally there are income limits to qualify for Roth IRA if you make too much money you can't contribute to the Roth however there is a really cool way to get around this income limit and it's a hundred percent legal and I show you exactly how to do it in this video the income limits for the Roth IRA are a hundred twenty four thousand dollars in 2020 if you're single and if you're married filing jointly it'll be one hundred ninety six thousand dollars so those are where the Roth IRA ability to contribute starts getting phased out so if you don't qualify but you want to learn about a really cool workaround definitely check out this video moving right along to the 401 K by far the biggest Pro of 401 KS is tha

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