3-Levels Podcast: Considerations for Traditional v. Roth accounts
May 13, 2024
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Justin Waring and Ainsley Carbone discuss the nuances of traditional and Roth accounts, covering contribution methods, tax implications, and retirement distribution strategies. They emphasize the importance of understanding account rules and individual financial circumstances for optimal decision-making.
Traditional accounts have pre-tax contributions with taxes upon withdrawal, while Roth accounts involve after-tax contributions and tax-free distributions.
Deciding between Roth and traditional accounts depends on future tax rates, diversification needs, and optimizing tax benefits during retirement.
Deep dives
Difference Between Traditional and Roth Accounts
Traditional accounts involve pre-tax contributions with taxes paid upon withdrawal, while Roth accounts require after-tax contributions with tax-free distributions. Contributions can be made through employer plans like 401k or 403b, offering different tax advantages and eligibility rules. Additional accounts like traditional IRA and Roth IRA have varying income restrictions and deductibility factors, requiring careful consideration with a financial advisor.
Identifying Contribution Types
Deciding between Roth and traditional accounts depends on future tax rates, tax diversification needs, and the purpose of the saved funds. Predicting future tax rates is challenging due to legislative powers, recommending spreading taxable income across different years for flexibility. Converting assets between Roth and traditional accounts during retirement can optimize tax benefits based on income levels and timing of withdrawals.
Reviewing Contribution Strategies
Periodically reassessing contributions by balancing traditional and Roth accounts based on changing circumstances like income levels and tax brackets is crucial. Annual reviews help adapt contributions to income fluctuations, while significant tax rate changes can prompt strategic adjustments between Roth and traditional to maximize tax savings. Collaboration with financial and tax advisors is essential for optimizing contribution strategies throughout different life stages.
On this episode of 3-Levels, Justin and Ainsley explain the differences between traditional accounts and Roth accounts, including considerations when it comes to contributions, frequency of account reviews, and taxes. Featured are Justin Waring, Senior Total Wealth Strategist, and Ainsley Carbone, Retirement Strategist, from the UBS Chief Investment Office. Host: Daniel Cassidy
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