Traditional Tax-Deferred vs. Roth Accounts

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Traditional tax-deferred accounts, also called pre-tax accounts, allow individuals to defer paying taxes on earned income by putting it into a retirement account where it grows tax-free until withdrawal, at which point it is taxed as income. This type of account, like the 401k, is beneficial for individuals expecting to have a lower tax rate in retirement. On the other hand, Roth accounts require individuals to pay taxes upfront on contributions, but the money grows tax-free and can be withdrawn tax-free in retirement, subject to meeting specific eligibility criteria. The choice between traditional and Roth accounts is essentially a decision on whether to pay taxes now or later, with most retirement account options now offering a Roth variant, such as the Roth IRA.

Today Chris Davin, engineer and self taught master of all things Roth, joins Dr. Dahle on the podcast. For anyone who has ever wanted to get all the way into the Roth weeds, this episode is for you. We talk about Roth IRAs, the Backdoor Roth, the Mega backdoor Roth, Roth conversions, and what all of those things mean. We discuss how to determine if you should be doing pre or post tax contributions and why, and how your taxes and tax rate should be considered when deciding what kind of contribution to make. We start with a 101 level discussion before moving to a 201 level discussion and then diving into the graduate level tips and tricks.

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