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Traditional IRA vs Roth IRA for High Incomes (above $200k) - YouTube
Channel: Financial Awareness with K.Scholl
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What's up guys, I'm KScholl. Welcome to
another Financial Awareness video.
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Today we're going to be answering
someone's question: "Should I get a Roth IRA
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or Traditional IRA. Let's get to work!
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Here's what John shared: "Should I get a
Roth IRA
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or Traditional IRA? I have approximately
negative $65,000 in
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assets. I make about $205,000 per year
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and am single. I would like to purchase a
house in the next two to three years.
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I took a peek at the one offered by my
employer and wasn't impressed so
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didn't opt in to any employer offered
retirement funds.
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I am only one year out of residency. Thanks, John."
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Well John, congrats on completing
residency and I hope your career is
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shaping up well for you.
Not really sure which field of medicine
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you're in, but I hope you continue to
find success.
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Dave Ramsey would tell you not
to put
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any money into either a Roth IRA or
Traditional IRA and would strongly
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encourage that you pay off all of your
medical student loans
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first before saving and investing into
your retirement for your future.
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If you are disciplined in that approach
though
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it will serve you well. However, since you
didn't mention
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paying off your debt as a high priority
I don't really know how motivated you'll
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be to follow Dave's baby steps. You might
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not like my response, but
here you go...in your situation...I wouldn't
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put any money
into either a Roth IRA or Traditional
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IRA. First off, you make too much money to be
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able to contribute to a Roth IRA.
So that's the easy answer there. Second,
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yeah, you could contribute to a pre-tax
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Traditional IRA and put $6,000 into that
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account and allow it to grow...
...but it's gonna grow tax deferred and you
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make too much money to be able to get
the tax deduction for making that
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contribution. So why would you put after tax dollars
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into a pre-tax,
tax deferred retirement account? Why
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would you do that?
Additionally, since you already mentioned
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that you didn't like any of the options
in your employer sponsored plan
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then I'm going to assume that you fully
research
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the historical performances, the expense
ratios,
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and the fees involved within your
employer 401k plan.
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That said, I would encourage you to do
three things....
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First, continue to pay down your medical
student loans.
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Second, save cash for not only your
emergency fund but for the down payment
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of the house that you said you wanted to
purchase in the next
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two to three years. I'm not sure where
you live in the United States, but I
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would encourage you to aim for
20% down as a minimum threshold.
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Third, open up a non-qualified, investment
brokerage account
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and see if you can find some better
investment options that you couldn't
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find within your employer-sponsored plan. However, do some more research on your
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employer-sponsored retirement plan. IF your employer allows for in-service
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distributions from their 401k
then my suggestions are going to change
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a little bit here. You are always 100%
vested in what you contribute into your
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401k. So, if your employer allows for
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in-service distributions
then I would put I don't know maybe 5%
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of your pay
into your 401k. You don't have to invest
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it. Just let it sit in cash
and then I would transfer those funds on
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a pretty regular basis I would say
over into your Traditional IRA. If you're
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doing 5% into your Roth 401k
then those funds would have to be
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transferred over into your new Roth IRA
at which time you could select nearly
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any investment option
based on your time horizon, risk
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tolerance, and preferences.
I did a whole video on Roth 401k versus
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pretax 401k.
I'd encourage you to check that one out.
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Okay, well John hope that helps out a
little bit.
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If anyone else has questions and would
like a video response
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check out the description below and send
me an email. No,
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this guy's name is not John. If you found
any value in this video do me a favor
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and tap that like button. I appreciate your time see you in the next one.
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next one
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