Why You Should Do a Roth (Part 2)

In part 1 of our five part series on “Why You SHOULD Do a Roth” we introduce Bob and Jane Youtube.

They are both 50 years old. They each make $50 a year. Defer $10k of their salaries to their 401k, their company matches 8% of their salaries.

They expect to get a 7% Rate of Return from now until they reach the age of 60 when they will stop working. They also expect to get a 7% rate of return from 60 -70 when they have to start taking required minimum distributions and then will cut back their “risk” and expect to get 5% returns from there on out.

By deferring into the traditional 401k they save around $2500 a year in taxes which they can invest in a side account, also growing at 7% a year.

Is that the best solution though?

We’ll go over this in depth in this series. So stay tuned!

In part two of our 5 part series of why you need a Roth, Jane and Bob Youtube have now reached 60 and 70 years old. Their accounts have grown nicely.

At 60 years of age, they both have around $500k in their 401k plans.

Impossible you say? Well, no, not at all. Remember when they were 50 they started with $150k each in their 401ks. They added a 10k deferral and their company matched 8% of their salary.

So each year $14k was going into the account and it was growing at 7% a year. None of these scenarios are far-fetched

But at 60 let’s say they receive an inheritance or something and decide to quit their crappy old jobs.

They no longer add to their investment accounts but they aren’t taking money out either.

By the time they reach 70 their accounts have grown to around $1,000,000 each! Now they have reached the age for required mandatory distributions. RMDs on $2,000,000 is around $75,000 in the first year!

Wait to see what happens in following years, it’s going to get a LOT worse.

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