Why You Should Do a Roth (Part 2)

In the last of the 5 part series, we show you what happens when you defer your contributions to your Roth 401k as opposed to the traditional side.

HUGE differences in taxes. Huge difference in Medicare premiums.

HUGE savings in taxes to the surviving spouse…and the kids too!

Yes, Bob and Jane will pay a bit more taxes today. There is no escaping that fact, my friends.

When you add money to a Roth, you are NOT getting a tax benefit today. Thus you will pay more in tax today.

But to calculate if this is worth it or not, you need to look well beyond just your tax bracket today vs. what you think your tax bracket will be in the future.

You need to consider the taxes on Social Security, the extra premiums on Medicare, the increase taxes on long term capital gains and qualified dividends, and you need to consider the same for your surviving spouse who will have a much higher tax bracket than you even if she/he will have less income due to nothing more than being a single taxpayer!

So watch as we run through the numbers for a Roth and compare them to the Traditional.

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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