The Power Of Zero Show Top Five Reasons to Pick a Roth 401(k) Over a Traditional 401(k)
This episode features David McKnight sharing the top five reasons why a Roth 401(k) is far superior to a traditional 401(k).
Something important to keep in mind: the decision you make today will determine how much of your retirement money your future self actually gets to keep.
David touches upon the fact that choosing the wrong 401(k) could cost you hundreds of thousands of dollars in unnecessary taxes in retirement.
Tax rate risk is the first big reason why you should consider investing in a Roth 401(k) over a traditional 401(k).
David lists a series of key questions people who invest in a traditional 401(k) often fail to ask themselves.
The second reason to consider a Roth 401(k) over a traditional 401(k) is Social Security taxation.
Most people believe that Social Security is tax-free…but it's not.
50% of your Social Security, plus wages, pensions, and interest, as well as all withdrawals from traditional IRAs and traditional 401(k)s, are what the IRS counts as provisional income.
The third reason for choosing a Roth 401(k) and not a traditional 401(k) has to do with something that most retirees never plan for: Income-Related Monthly Adjustment Amount (IRMAA).
Remember: "When you control your taxable income, you control your Medicare costs."
Required Minimum Distributions (or RMDs) are the fourth reason for opting for a Roth 401(k).
The fifth reason for going for a Roth 401(k) instead of a traditional 401(k) has to do with your heirs. When they inherit a traditional 401(k), it becomes a tax bomb.
So, why choose a Roth 401(k) over a traditional 401(k)? Because a Roth 401(k) helps you eliminate tax rate risk, avoid Social Security taxation traps, prevent Medicare premium explosions, stay in control of withdrawals, and leave tax-free income to your heirs.
Mentioned in this episode:
David's new book, available now for pre-order: The Secret Order of Millionaires
David's national bestselling book: The Guru Gap: How America's Financial Gurus Are Leading You Astray, and How to Get Back on Track
Tax-Free Income for Life: A Step-by-Step Plan for a Secure Retirement by David McKnight
PowerOfZero.com (free video series)
@mcknightandco on Twitter
@davidcmcknight on Instagram
David McKnight on YouTube
Get David's Tax-free Tool Kit at taxfreetoolkit.com