Personal finance expert Dave Ramsey highlights the advantages of Roth 401(k) plans over traditional 401(k)s. He explains how investing $200 monthly in a Roth 401(k) can yield significant tax-free earnings in retirement. With traditional plans, significant taxes are due upon withdrawal of the total amount, whereas Roth accounts allow investors to pay taxes upfront and withdraw earnings tax-free. Ramirez's straightforward analysis underscores a substantial long-term benefit for those who contribute to Roth 401(k)s, making them a preferred option.
The Roth absolutely mathematically kicks the traditional [IRA's] butt. If you take $200 a month from age 25 to age 65, you’re gonna have $2.5 million dollars in there. However, only $96,000 of that is actual principal. With a traditional 401(k), you'd have got a tax break on $96,000 but will pay taxes on the entire $2.5 million as you pull it out. With a Roth 401(k), you pay taxes on the $96,000 before and zero taxes on the rest.
The beauty of a Roth 401(k) is that while you're paying taxes on your contributions upfront, the earnings grow tax-free, and when you're ready to withdraw in retirement, you don’t owe anything else. This tax-free growth can potentially lead to massive savings over time, especially for younger investors.
Collection
[
|
...
]