EP 98: Roth IRA vs. Traditional IRA: The Great Debate
The X's and O's
In this episode of the Retirement Plan Playbook, hosts Matthew Theal and Joshua Winterswyk from Evermont Wealth dive into the debate of Roth IRA vs. Traditional IRA. They begin with casual conversations about March Madness, and then transition into hot take headlines including potential TikTok bans and an antitrust suit against Apple.
The core of the episode is dedicated to unraveling the intricacies of Roth and Traditional IRAs, discussing their benefits, limitations, and suitability for different financial scenarios. The hosts also touch upon spousal contributions, the backdoor Roth IRA strategy, and present the new provision allowing 529 plans to be rolled over into Roth IRAs.
The episode concludes with personal recommendations, highlighting the benefits of a new golf club and recommending 'The Gentlemen' on Netflix.
01:28 March Madness and Bracket Bets
03:01 Hot Take Headlines: Federal Reserve and Interest Rates
06:39 Inflation Insights and Economic Theories
11:13 TikTok Ban Controversy: Security vs. Social Media
14:04 Apple's Antitrust Suit: A Tech Giant Under Scrutiny
16:44 The Impact of Apple on the Stock Market
17:28 Apple's Legal Battles and Potential Outcomes
18:43 Retirement Planning Corner: IRA vs. Roth IRA
23:23 The Traditional IRA: An Underutilized Tool
25:06 Navigating Non-Deductible IRA Contributions and Backdoor Roth IRAs
28:39 Maximizing Retirement Savings: Strategies Beyond the 401k
30:08 Final Thoughts and Recommendations
Connect With Evermont Wealth:
Transcript
Intro: Welcome to the Retirement Plan Playbook hosted by Brent Pasqua, Matthew Theal, and Joshua Winterswyk of Evermont Wealth. This podcast dives deep into investment strategies, retirement planning, and current events, equipping you with the insights needed to craft a robust retirement playbook adaptable to any political or economic climate.
Intro: Join Brent, Matthew, and Joshua as they guide you through the complexities of retirement planning, offering expert advice to tackle challenges in the later stages of your journey.
Intro: It's time to build your optimal retirement playbook. Now let's dive into today's episode.
Matthew: Welcome to the retirement plan playbook. I'm Matthew Theal, certified financial planner at Evermont wealth. And I'm joined as always by Joshua Winterswyk, a certified financial planner at Evermont wealth as well. No Brent today. He's off at Disney world on a much needed vacation. But Josh, happy to be here with you.
Matthew: How are
Joshua: you doing today? I'm doing well. Thanks for the intro. Hope Brent's having a good trip. Yeah,
Matthew: me too. I hope he's having a great trip. We got an exciting show today. We're going to kind of debate Roth IRA versus IRA. It's tax time. We know a lot of people are wondering if they should make a traditional IRA contribution or make a Roth IRA contribution.
Matthew: We're going to talk a little bit about both today. But before we get into that. Josh it's March, which means it's March Madness. NCAA tournament's going on. Did you do a bracket
Joshua: this year? I did. Yeah, I filled out one bracket. It's definitely a tone down from like previous years where I might have filled out multiple brackets.
Joshua: But I'm not as interested. Big UCLA basketball fan, they're not in the tournament. So, haven't been watching as closely as I usually
Matthew: do. Yeah, same here. I follow UCLA and it's a bummer USC's not in it as well. So there's, there's no real Southern California schools representing. I would think like UCI or any of the other smaller schools that sometimes make it, Oh, San Diego state.
Matthew: Yeah, they made it. I did a bracket as well. Not falling in too closely. You know, I haven't even checked, which shows you how close we're doing.
Joshua: We're both doing bad. Oh, we're bad. It's not looking good.
Matthew: Really? Yeah. But most of the favorites are still alive at this
Joshua: point. Yeah. So hopefully we can make.
Joshua: Make some make up some ground, but I don't think we're too hot after this opening. Well, that's not good. I save you. I save you the disappointment. You don't need to go log in and
Matthew: look. Well, hopefully we the, we nailed the winner. Cause if you know the winner, you know, the bracket challenge usually, yeah, you're
Joshua: usually end up at the top.
Joshua: Cause they rated it by points, right? For the champion is the highest points you get from picking the winner. And I
Matthew: think we both picked the same winner and along with Brent, I think we all picked Houston. So Yeah.
Joshua: How'd that happen? I don't know. Same research, same
Matthew: researcher. We're all kind of like, ah, Houston has been at the top for the last few seasons.
Matthew: Maybe they'll eventually win one of these. Yeah.
Joshua: Good luck to your brackets out there. Everyone who filled them out.
Matthew: Yeah, absolutely. Okay. Let's get into hot take headlines. We'll start at the, the most recent federal reserve interest rate decision came out and they decided to keep interest rates unchanged.
Matthew: This is the fifth time the feds have held the rates unchanged. The first rate cut they said is expected to come sometime this summer. Josh, any takes on this? I guess we're still expecting a rate cut at some point.
Joshua: I don't know. I mean, I I'm not as optimistic and I think the feds more optimistic about cautiously optimistic about the U S economy.
Joshua: But I'm not. For certain that these rate cuts are even going to happen.
Matthew: I would say that as well, but I mean, they literally keep saying it. So like they have to eventually do it because you can't say something and not do it. They're breaking
Joshua: the news lightly though. It was like five rate cuts. No, it's three.
Joshua: No, we're going to pause again. Now it's only going to be two. So I think they're breaking the news to us. Slowly. Yeah,
Matthew: personally, I can't believe they're going to be cutting rates. The economy is really, really strong right now. But the one thing I've kind of learned throughout my career is not to fight the fed.
Matthew: When they say they're going to raise rates, they mean they're going to raise rates. When they see that they're going to cut rates, they're, they're probably really going to cut rates. I imagine though, this is more kind of like a, You know, wink, wink, nod, nod of the Biden administration and they're cutting rates to help his reelection case.
Matthew: That's my theory.
Joshua: That's your theory. I don't know if I'm as, you know, dialed into that theory, but you know, it is a balancing act, right? At some point, I mean, they've continuously expressed that they want to cut rates and they don't want rates as high. I think everyone in America is waiting for these rates to be cut as well.
Joshua: So if they can really get this right with the timing of these rate cuts You know, it could mean a very, very soft landing. Like we've talked about all last year in a, in another good year for potentially an economy and markets. Yeah.
Matthew: And the other thing too, on rates, I don't know if you feel this way, but I feel like them cutting rates by 25 basis points.
Matthew: Isn't going to have much of an impact on anything. I know the real estate guys are thinking that, you know, the flip market and home sales are going to go through the roof again, but I don't see that happening. I
Joshua: see a lot of that. Yes. You know, rates coming down, especially a lot of You know, happiness around rates coming down from that real estate market.
Joshua: But again, you know, I, I agree with you. I don't think that cutting even 50 basis points, 75 basis points this year, you're going to see too much of a difference.
Matthew: And that was actually one of the big takeaways, I think, from the fed press conference was Powell was saying that if you're anchoring to those low interest rates, like we had in the mid to late 2010s that's not coming back.
Joshua: Yeah, and to give some kind of more context, you know, When rates were zero, you had a mortgage rate at 3%. Now, you know, rates are at five and a half and you're seeing mortgage rates around seven, 8%. So if they only cut 50 basis points this year, you're not seeing that 8 percent go back down to 3%. Yeah. Maybe
Matthew: you're getting a mortgage at like 5.
Matthew: 9. Hopefully
Joshua: five, seven, if you're lucky. Yeah. I mean, it can't help, right? Obviously, you know, a little bit of a cut can help anybody, but then does that bring more demand into, even if we're just talking about the real estate market, right? Does that raise prices? So a lot of variables to this whole equation, but.
Matthew: Well, I'm going to stick with my concerns, conspiracy theory Biden administration you know, which is good. Everybody wants a strong economy and stock prices going higher. But I
Joshua: think one thing to, before we move on is that. You know, I almost feel like we kind of are expecting worse economic data, but it continues to be good.
Joshua: Yeah.
Matthew: I have a theory on that. I'll share it in a little bit. Okay. Let's jump in the next headline. The CPI which is the measure of the level inflation in the economy came in a little harder, hotter than expected running about 3. 8 percent over the year over year, and it rose by 0. 4 percent for the month.
Matthew: Both what they call the headline and core CVI figures were higher. Energy costs were a big contributor, rising 2. 3%. That's because oil has been going higher. Food and food costs remain flat, which is I think what most people complain about the rising cost of food at the store and at restaurants.
Matthew: But overall inflation's kind of sticking around that three to 4 percent number, which is a little high, which is why I don't think
Joshua: the feds cutting. Yeah, I don't think so either. And to be honest though, we, we use that word like you just used it right now. Inflation came in a little hot, but it wasn't too hot.
Joshua: Like, I mean, we're talking about, you know, 40 basis points higher, not too big of an increase. We're still below that kind of 4%. I know the federal reserve wants to see this trending down more towards 2 percent and hopefully that's the case, but I also feel that this is somewhat positive because you're like, you were talking about it's energy, maybe even some shelter, but not like the groceries, which we're feeling the most, you know, dining out food, When we go out and spend.
Joshua: So hopefully that continues to stay level or continues to go down. So people can feel a little bit of a break. Cause I feel like everything when I go out is just extremely expensive. So it's really
Matthew: expensive. I know we're complaining. Our clients are complaining. I think I told my McDonald's happy, happy meal story on the podcast a few shows back.
Matthew: But I've, I've been developing this theory and I just think the economy is too good. And that's why inflation is strong. Let me walk, let me walk you through my theory. Okay. All right. All right. So you have like, let's call them the millennial generation, everybody 45 between 45 to 30. They're at their highest earning peak family formation years.
Matthew: So that core cohort of people, which I believe the largest demographic in the country is out there spending money like crazy, right? They want to buy houses. They're having kids. They're getting married. They're going on trips. They're driving up prices. They're the only ones. No, but at the same time, then we have the second largest generation, the baby boomers.
Matthew: They're either retired or retiring all right now. Most of them are actually already retired. Right. And we know they saved up a ton of assets, right? They're, they hold the majority of financial assets in this country. Correct. Stock markets at all time highs and they're getting 5 percent on all their cash holdings.
Joshua: Housing values are at close to all time high stock markets at all time highs. They're getting 5% you know, they're on their bank CDs, 5 percent in their treasury bills in their investment portfolios. So with that all being said, what's forcing them to stop spending? I'm kind of just playing into your point, but
Matthew: that's why the economy is strong.
Matthew: So their kids are out there who are now they're not kids anymore. They're in their mid thirties, early forties. They're spending money like crazy. And then these baby boomers are richer than ever and they're spending money like crazy on in their retirement. You know, it's a boom. It's
Joshua: funny though, because everyone's complaining about inflation, right?
Joshua: I mean, it's a topic at dinner party at the library, wherever you're going, inflation is a topic. But no one's saying I'm slowing down my spending. I never heard that side of the argument. Yeah
Matthew: You know what? It is people just like to complain
Joshua: Maybe you're right but I don't ever hear that because you know for inflation to come down demand has to somewhat come down right and it seems like No one's really wanting to slow down on you know, whipping out the credit card.
Matthew: Yeah, exactly And you know, what's funny though, too is you know, what gets inflation down from here? There's a really bad recession
Joshua: and we don't want that.
Matthew: Yeah. And that would mean cash isn't paying 5 percent the stock market's crashing and people are losing their jobs. We probably don't
Joshua: want that. Yeah, we don't, we don't want that.
Joshua: So I think that, you know, I'd rather deal with inflation lasting a little longer at these levels than go into a deep recession where, you know, you're having family members and your neighbors lose their jobs and. You know, really struggle.
Matthew: Yeah. And I think too, one last point on inflation right now where it's at is actually right about the historical norm of what it's been since they started tracking inflation.
Matthew: So I think it's right around 3. That's what most financial plan softwares use. That's what we use. Yeah. So interesting little food for thought there. All right, let's get in the next headline. Do you care about this? Tick tock van?
Joshua: No, it's not. I don't use tick tock. So when I saw this headline, there's a, you know, potential.
Joshua: Proposed bill aimed to address data security, national security concerns associated with tick tock. And the bill requires tick tock Chinese parent company. Is it bit dance to sell off bite dance, bite dance, bite dance to sell off the app within six months or face a nationwide ban, there's going to be a lot of upset people if this happens.
Joshua: I
Matthew: thought this is a good story because everybody's talking about it. I'm not sure if it fully matters. I think where it could matter for most people is a tick tocks actually actually a really large company for the listeners. If you do not know this, if it was publicly traded, it would be, I think around 250 to 300 billion in size.
Matthew: Do you know how many users
Joshua: that,
Matthew: No, I don't, I'm not sure how many users they have maybe you could look it up live ramble. But right now reasons for banning it, I think are pretty clear. Why on earth would we let a Chinese social media company like into our country to not like infect our kids.
Matthew: But how could I say this, you know, influence our kids and young people when they don't allow any American us company, any American social media company in their country.
Joshua: I have to agree with you. 1. 5 billion users. That's a lot of people. That is a lot of people and just the security. I mean, in this country though, and I'm glad this is being brought up, you know, you have to abide by certain regulations and this is what's happening.
Joshua: They're really not. And so, you know, we're going to do something about it. I think that that's, you know
Matthew: right now though, there's currently no timeline for this. I know the house passed it, but the Senate I was, I was trying to look this up and figured out they have no timeline to vote on this. And then president Biden said, if the bill comes to his desk, he will sign it.
Matthew: So basically we're just waiting for Senate to approve this. It does, they are expected to vote it through.
Joshua: Oh man, there's going to be a lot of backlash.
Matthew: Yeah. A lot of mad
Joshua: people. What do you think they sell? I don't know. No,
Matthew: no, I don't think they're going to sell. I would imagine what ends up happening is, and I have another story where I think this is going to happen is maybe there's administration turnover and this goes away or gets brushed under the rug.
Matthew: Cause the initial, from the initial story, the story is about a week old now as of recording, it's already kind of got brushed under the rug a little bit. And like I said, the Senate has no timetable even. Bring this to the floor to speak about
Joshua: it. Yeah. And it seems like there's going to, you know, under when it gets to the Senate, there's going to be a lot of scrutiny.
Joshua: Yes,
Matthew: they are. So pretty much probably a non story for now.
Joshua: It's been a story for a while though, to close on this topic. It
Matthew: has been. Yeah. Cause Trump brought it originally. And now it's back. Okay. This is probably the biggest story we'll talk about today. Let's get into what happened with Apple and Apple and the Department of Justice.
Matthew: So the Department of Justice filed an antitrust suit against Apple accusing the company of maintaining a illegal monopoly in the smartphone market. They said that Apple violated antitrust laws by restricting competition and innovation in the smartphone industry. This is Targeting the iOS operating system.
Matthew: And I believe the iOS app store for blocking super apps, cloud streaming, messaging apps, and third party smartwatches and digital wallets.
Joshua: And you know, this, if you use Apple, it doesn't play nicely with other applications, other companies, other smartphones, other devices. We know this. Yeah. You're locked
Matthew: in the ecosystem and that's what they're saying is the problem.
Joshua: Mm hmm. This story has been building too. I feel like for a long time.
Matthew: Yeah, this is a huge story. It's very reminiscent to what happened to Microsoft in the late nineties, early two thousands over the windows operating system. Apple's in some trouble here and the stock's actually been going down. Not a lot, but it hasn't been going 15 or 20 percent year to date.
Matthew: And you know, I'm, I'm not sure where Apple goes from here. They're obviously going to have to fight this. But like when we look at what happened to Microsoft in the late nineties they ended up having to settle and the settlement happened in 2001. So the case was brought in 1998. They settled in 2001.
Matthew: During that time period, their stock was down 13. I was up 43%. However, from 2001 to 2013, so the period after the settlement, their stock was down 13%. So in that whole time period was at eight years. Yeah. The stock didn't go up at all. It was down. And I was reading about trying to figure out what people are saying happened.
Matthew: And what they said happened was the, like the, the suit brought on, like, even though they settled and Microsoft has kind of got a slap on the wrist, it killed the culture of the company. All the innovation that was happening. And it allowed you know, companies like Google and Yahoo to step up and really take away that internet search, which ultimately become Google who, you know, has a monopoly on internet search.
Matthew: And it's really just been probably the last, you know, five years to eight years that Microsoft stock has become an attractive growing stock again. And then obviously the new CEO Sattel Nadelli is, you know, really pushing them towards AI. So I'm a little bit concerned about Apple here. What
Joshua: you're saying though is ultimately the Microsoft recovered from all of this.
Matthew: It took a long time. It did. And Apple is probably the most owned love stock in the market.
Joshua: I think that what's important for the listeners to understand as well is why this is so important is because Apple is such a large company in the United States stock market that whether you know it or not, you know, most investors own Apple.
Joshua: Whether if it's at an ETF or a mutual fund and a pretty good chunk of it. If you're indexing or, you know, if you're buying any sort of mutual fund, that's tracking the market. So to understand that to you, this is a big story because, you know, what Apple does is really gonna have an effect on your overall investments and the stock market.
Joshua: So tracking the story is important. I also see though, that on the other side of this. What if it just happens to where they have to open up that ecosystem and they get slapped on the wrist and all as well. That
Matthew: could happen. Most likely that's what's going to happen because that's what happened to Microsoft.
Matthew: Right. I mean, Apple has probably the best lawyers in the country are going to work this case versus the government. That said, I think the important thing that happens, what happened to Microsoft after the case, Where they kind of took their eye off the ball. Company culture wasn't what it once was.
Matthew: We, we've already seen Apple kind of slip up in AI. People are waiting to see what they do. Their, their car, their car. Like we've seen issues coming out of Apple recently. You know, so just something to monitor.
Joshua: Yep. I agree. Something to monitor, but I feel like I have a little bit more confidence in Apple.
Joshua: I don't know. It's cause I use all their products. I've been a big fan of Apple for a long time. I hope they get this together and that doesn't happen. I, I
Matthew: love their products too. I'm an Apple guy, but yeah, it just, you know, makes me a little bit nervous. And I do have a large position in Apple stock.
Matthew: I've owned it for 10 to 14 years now. Not to brag. Yeah, not to brag. Okay. Is that it for headlines? Do we have
Joshua: one more? No, I think that's it. I think we're going to jump into the retirement planning corner now. Okay,
Matthew: great. Well let's jump in the corner. Let's debate the traditional IRA versus the Roth IRA.
Matthew: I'll get us started by defining them both. So, or define a Roth IRA, a Roth IRA allows you to put after tax money in and your earnings grow tax deferred. When you grow to, when you go to pull out your money, your earnings aren't, your withdrawal is non taxable. And you are not subject to RMD rules.
Matthew: There's a few little caveats on Roth IRAs where you have to hold your money in for a certain amount of time, but you could also always take your basis out. So you could always take out what you put in which is a really, really nice feature. Josh, what do you think of Roth
Joshua: IRAs? Well I have a fun little fact here.
Joshua: Okay. Give it to me. Do you know how they came up with the name for the Roth IRA? No. Named after the Senator William Roth. I didn't know that. What year was it? I don't know that either. I didn't find out why it's called a Roth IRA. I didn't know. I didn't know the origin of that. Now IRA, retirement account, right?
Joshua: That's what we're talking about. Explained after tax dollars. How do I feel about Roth IRAs? I think that's a great tool, but on the other hand, what we're going to debate today, I kind of take the side of the traditional IRA which allows you to contribute pre tax dollars, reducing your taxable income for the current year.
Joshua: And that's a good sweet benefit for right off, right off the bat.
Matthew: And then, and then I guess another major difference would be your earnings or can grow tax free, which is the same, but then when you withdraw, you have to pay taxes,
Joshua: right? Correct. So you'd have to pay taxes on the distribution from the traditional IRA when you take that money out.
Matthew: So I feel like most general financial advice always says Roth is better. I agree. And I don't know who who's putting this out there. I'm going to go with maybe the Dave Ramsey style people or the people on Tik TOK. I think Ross are really good for a certain subset of people. When you're young in your career, a Roth makes a lot of sense.
Matthew: I think you can put some money away after tack. I mean with your after tax dollars, you're not paying a ton of tax anyways. So you probably don't need the tax deduction. You know, maybe you could get 50 to a hundred thousand into a Roth IRA before your earnings grow so much that you're, you're uncapped and you can't use the Roth anyways.
Joshua: Agree. Good tool. If you're starting out. In a good tool, if your tax brackets low,
Matthew: however, I think you hit a certain point where they become overrated and what I think ends up happening. I don't know if you agree. I feel like high earners overrate the Roth because they can't, they don't have access to it anymore.
Matthew: That's
Joshua: a good take. Thanks. I do like that. Yeah, I think so too. I just feel like everyone, you don't, I don't know if it's social media, the news, everyone is like Roth IRA, you know, and it's, it's, you contribute into your Roth IRA, you know, get your kids on payroll and get them to contribute to the Roth IRA, like all of these strategies around the Roth IRA.
Joshua: But like you said, I agree. I think it's for a. Particular subset of people at certain times. And for most people though, you know, Roth IRA works out really well. If you're expecting a higher tax bracket once you retire, but as you know, for the most part, most people we meet with their tax bracket when we're having these discussions about Roth IRA or IRA are making more money now than they are going to be in retirement, meaning you'd have a lower tax bracket in retirement than when you're actually contributing into one of these accounts.
Matthew: That's the majority of people have a lower tax rate in retirement. It's I've actually don't think I've ever seen a client come to me with a higher tax rate in retirement than they did while working.
Joshua: I'm I can, I'm trying to think too. I don't think I've had that either. I think people love it too, because it's like when you can pull the money out tax free.
Matthew: Yeah. And so what that is, is your basis, what you put in. So if you put in 5,000 you could pull that out at any time. Right. And then your, if your earnings, you could also pull out once you hit 59 and a half tax free. So it does have some flexibility there.
Joshua: Yeah, it does. And I don't want to knock the Roth IRA.
Joshua: I think it is a great financial planning tool. Absolutely great. But again, I think it's for a very specific type of person.
Matthew: Should we discuss IRA now?
Joshua: Yeah, yeah, we can discuss IRA. So this is a traditional IRA, what we call IRA non Roth. You're using pre tax money to fund this. So what it's going to benefit, it's going to benefit you tax wise in the year you actually contribute into that account, effectively lowering your income for that year.
Joshua: So this is, you're going to receive that benefit right away. It's going to grow tax deferred, but when you actually pull the money out. Out of the IRA, that's when it's going to be taxed. So every dollar you pull out will be taxed. One thing that is different from the Roth IRA though, is you do have required minimum distributions from traditional IRAs.
Joshua: So that means at some point, depending on the year you were born, you will have to start taking this money out as an IRS requirement. So that could be a little bit of a negative there. If you weren't planning to use the money. And now the IRS is telling you, you have to take some out and withdraw it and pay the taxes on it.
Joshua: I think
Matthew: that IRAs are kind of underutilized or underlooked because the majority of people are on the 401k system or on an employer sponsored plan. So they lose a deductibility aspect of IRAs. We did a show on that a few weeks back, if you want to listen to that. So iris as a tool don't get looked at as that benefit beneficial, which is why I think everybody wants the Roth IRA
Joshua: Yeah, because they're either a part of that plan and they make too much money So that brings another variable or element to this decision, but I think they do get overlooked.
Joshua: They have so many Especially for the people that are going to be in a lower tax bracket in retirement. So looking at this as an option, shouldn't be overlooked you know, and always be kind of focused on the Roth IRA. Cause I do think for most people, traditional IRA makes more sense. Yeah.
Matthew: And one thing on the IRA that a lot of people don't know is You can make those deduct those non deductible contributions.
Matthew: Anyone can make that as long as you have a job. Yeah. And,
Joshua: and what that means is that you're not going to be able to lower your taxable income for that year. So you can still put into the IRA, it'll have the benefits of growing tax deferred, but you're not receiving the actual tax deduction from contributing.
Joshua: If you're doing a non deductible traditional IRA contribution
Matthew: and the benefit to someone doing this, right. Is they would get tax deferred growth. On their earnings from using an IRA this way.
Joshua: Correct. So instead of putting, you know, let's just say 7,000 into a brokerage account, which you're going to be taxed on all of the dividends and interest in that year, or the capital gains, if you buy and sell within that account, all of that transactional annual, you know, tax that you'd be paying would be deferred until you pulled that money out of the IRA.
Matthew: And I guess another area or another aspect on IRAs, that's kind of interesting and unique is if you do do that non deductible, you could technically do the backdoor Roth IRA contribution, which is what all the doctors, the lawyers, the dentist, right? All the hiring professions who lose out on the Roth IRA.
Matthew: They all want to do the backdoor Roth IRA.
Joshua: Yeah. And really to do that, I mean, it has to be very, very well planned out and you're having to run real accurate projections to making sure that it's even worth it for you to do that. There's a lot of rules behind doing back, backdoor Roth IRAs and correct me if I'm wrong, but most people, you know, kind of don't even qualify to do that depending on the way their accounts are structured.
Joshua: So making sure you, you know, covering all of your basis, if you're even looking at doing something like that.
Matthew: Yeah, the one rule on it that really sticks out in my mind, there's quite a few, but the one will for most people is in order to do a backdoor Roth IRA you cannot have another IRA with money invested in it.
Matthew: Correct.
Joshua: You have to have an existing IRA with money invested in it.
Matthew: Yeah. You have to have a zero balance IRA. Cause then you
Joshua: fall under the pro rata rule. Yeah. Which isn't good. No, that's, and that makes it even more complicated. So if you have an existing IRA, you're already almost automatically out. So
Matthew: basically what we're saying is if you want to do one of these backdoor Roth IRAs consists with a certain consult with a certified financial planner, not a tick talk or Instagram financial advisor.
Joshua: Yeah, I agree. Yeah. That's, that's really good advice. For that, you know, another thing with like IRAs and Roth IRAs, and a lot of people don't realize for either one of them is like spousal contributions. Oh, that's a big one. So like people don't think that, you know, let's say husband and wife wife's the only one working husband doesn't.
Joshua: But you have to look at if potentially you could do a spousal contribution for the spouse that isn't working because the household does have income. This is a way that we use this, you know, strategies within our own office is looking at other ways to get more money into Roth IRAs and IRAs. And this is a good one because a lot of people, I think, don't realize that, you know, If the household has income, even though maybe potentially one spouse isn't working, they still might be able to contribute.
Matthew: Yeah. Especially big. If you have extra savings you know, we run into a lot of people who are putting a couple thousand dollars a month away. If you have that in your spouse, isn't working maybe your business owner or something, you could do the spousal IRA.
Joshua: Another way, even if you're contributing to an employer sponsored plan and you're working, but another way for your household to get more money tax deferred into retirement accounts for your household.
Matthew: I think in general though, you could tell me if I'm wrong, but I think there's, if you're maxing out a 401k, you're doing more than enough. And the, the, I also need access to a Roth or I want to make a non deductible IRA contribution and do a backdoor Roth. I think it's really overrated.
Joshua: Me too. I think it's, you know, it's enough work and discipline to just max out your 401k.
Joshua: Yeah. You know if you're doing that, great. You want to look at other strategies to get more money invested. Perfect. But I think, you know, if you're not doing that, those other strategies don't even matter.
Matthew: Right. Yeah. If I, if I was 60 right now, I would much rather if I had 2 million. I'd want it to be split equally between a brokerage account, a million bucks in a brokerage and a million dollars in my 401k or IRA, then having 2 million in retirement money.
Joshua: All pre tax. All pre tax. You're saying brokerage account for the listeners is post
Matthew: tax money. Post tax money. I'd rather have a brokerage account. Yeah.
Joshua: Yeah. I agree. I mean. My thing always is too, you don't want all of your money pre tax. Yeah, you don't want it at all. Yeah, I agree. You know, cause then when you get to retirement, you pull out any dollar, you know, you're being taxed.
Joshua: So that split, like you broke it down 1 million, 1 million. That'd be pretty sweet. It'd be pretty set up.
Matthew: Do you have anything, any other tips or any thoughts?
Joshua: No. You know what? We can't coming into this. I'm, I'm very passionate about debunking like all of the myth benefits of the Roth IRA for most people.
Joshua: I think that people fall in love with the Roth IRA. More people should be looking at pre tax contributions like a traditional IRA or even within your 401k. So make sure you do your research. And for most people, like we've seen, tax rates are going to be lower in retirement. So traditional IRA favors there.
Joshua: And you know, if you are splitting it or some, some of the combination could be good, but good. I don't think that being absolute one way or the other is also the best strategy. So looking at all of the options, but I'm here to tell you that it's, the answer isn't always Roth IRA. Yeah, I
Matthew: agree. I have one last parting thought, a little planning tip for the grandparents.
Matthew: I know we have a lot of listeners who are grandparents. They have probably some young grandkids at home. You can now do five 29s and roll them over to Roth IRAs.
Joshua: That's a great provision.
Matthew: Yeah. And this is something I absolutely love. So parents, grandparents fund those five 29s as much as you can afford.
Matthew: And then if the money's not used, I believe when your child's 25 we'll have to double check that rule. They could roll over a certain amount of that money to start a Roth IRA for retirement.
Joshua: Then you can do up to the contribution limit per year. Okay. Of the five 29. Yeah. And this also, you know, we get a lot of hesitation.
Joshua: I'm not going to start a five 29 plan. Because I don't know if my children are, or my grandchildren are going to go to college. Right. But we know this is a really good financial planning tool. And now with this provision, if they don't go to college, that's fine. We can convert this into a retirement account for them.
Joshua: Like when, when it's perfect. So I really love this provision and I like that, that convertibility from five 29 to Roth is an option. Regardless if they go to college or not, you're setting them
Matthew: up. Yep. All right. Perfect. Any last thoughts? No, no, no, no.
Joshua: At Vermont recommends.
Joshua: Let's do it. Do you want me to go first? Hopefully the weather's changing and it's You know gonna get a little warmer Because we really enjoy golf season around here And I bought a new You So my recommends today is if you're golfing new old, just go buy that new club. It brings so much joy.
Joshua: Got a new five wood and I am smacking it.
Matthew: I'm glad you're smacking it and having fun. I'm losing my voice out here.
Joshua: That's all right. That's right. But I know you always have this record men's of to me. Hey, you need to go get a new club. I finally pulled the trigger on this new five. What I think I might've already talked about it, but recommend today, if you're thinking about that new golf club, go get it.
Joshua: Cause. You know, it's just a great feeling when you get that new club and you smack it perfect and your golf game hopefully gets better.
Matthew: Well, I'm glad you got that club, Josh. That's awesome. I'm looking forward to playing with you this summer on the course at some of our tournaments.
Matthew: I'm going to recommend a Netflix show had some time recently to watch a new one. The gentlemen on Netflix, it's British drug dealing show. One thing I'll say about Netflix is they do a really good job making kind of like the drug drug Lord shows. And this is another one of those narcos Griselda.
Matthew: Yeah. So if you like that stylist show, like I do the drug the gentlemen's a really good one. I have to
Joshua: check that out. I heard you talk about that last was last week. You watched the first couple of episodes. I haven't seen like a trailer on it or anything, but I'll have to check that
Matthew: out. It's good.
Matthew: It's kind of witty, catchy fun show, different take on a drug dealing show. I think you'd like it. Okay. I'll have to
Joshua: check that out.
Matthew: All right. Thanks for listening to the retirement plan playbook. As always give us a like on iTunes or Spotify. And you can learn more by visiting the retirement plan playbook.
Matthew: com. Thank you very much. Thank you
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