Mark Biller is Executive Editor at Sound Mind Investing.In this month’s SMI newsletter, he has a great article to help folks make this decision, titled <a href="https://soundmindinvesting.com/articles/should-you-use-a-roth-account-even-if-you-prefer-traditional">“Should You Use A Roth Account, Even If You Prefer Traditional?</a>”  WHY IS THIS A GOOD TIME TO ASK WHETHER ONE SHOULD USE A ROTH ACCOUNT EVEN IF THEY PREFER TRADITIONAL?<ul><li>Roth IRAs were introduced in 1996 with rules about who can contribute.</li><li>A new law will soon mandate some older, primarily higher income 401k investors to direct some contributions into Roth accounts.</li><li>This law also impacts those using 403 B, 457 B plans, and the Thrift Savings Plan, prompting a reconsideration of investment strategies.</li></ul> [1:22] CAN YOU EXPLAIN THE DIFFERENCE BETWEEN ROTH AND TRADITIONAL ACCOUNTS?<ul><li>Both Roth and Traditional are specific types of accounts that provide tax benefits, applicable to 401 K plans or IRAs.</li><li>Roth is not an investment type; you can own stocks, bonds, etc., inside or outside of these accounts.</li><li>Traditional accounts offer tax benefits now but tax liabilities upon withdrawal, whereas Roth accounts offer tax liabilities now but tax benefits upon withdrawal.</li></ul> [4:11]WHAT'S THE CONVENTIONAL WISDOM ON CHOOSING BETWEEN THE TWO?<ul><li>Roth accounts are usually preferred by younger workers with lower income, expecting to be in a higher tax bracket during retirement.</li><li>Traditional accounts are often chosen by higher income, older workers who might have lower income in retirement.</li></ul> [6:55] WHAT ARE THE PROS AND CONS OF BOTH TYPES OF ACCOUNTS?<ul><li>Having both Roth and Traditional accounts provides diversified tax strategies.</li><li>Uncertainties like future income, changing tax laws, and life events like the death of a spouse can impact tax outcomes.</li><li>Roth accounts offer flexibility, such as not being subject to required minimum distributions.</li></ul> [12:54]HOW DO YOU FIND THE RIGHT BALANCE BETWEEN TRADITIONAL AND ROTH ACCOUNTS?<ul><li>University of Arizona researchers suggest adding 20 to your age and putting that percentage into a traditional account, with the rest in a Roth.</li><li>This approach considers the risk of changing tax rates in the future.</li><li>Investing some into Roth can mitigate some tax rate increase risks.</li></ul> [14:44]FINAL THOUGHTS ON ROTH VERSUS TRADITIONAL ACCOUNTS?<ul><li>Diversification is beneficial, applying to both taxes and investments.</li></ul>The principle of diversification is rooted in biblical teachings.That’s Mark Biller, executive editor at Sound Mind Investing. You can read more at <a href="https://soundmindinvesting.org/">SoundMindInvesting.org</a>.  On today’s program, Rob also answers listener questions: <ul><li>How should I save the money I received from my divorce if I want to buy a property in about three to five years?</li><li>I'm quitting my job to care for my mother full-time; where should I roll over my 401k since I won't be contributing to it anymore?</li><li>We're selling our home and going overseas for a year; what should we do with the profit if we plan to buy another house when we return?</li></ul> RESOURCES MENTIONED:<ul><li><a href="https://www.fidelity.com/">Fidelity</a></li><li><a href="https://www.schwab.com/">Schwab</a></li><li><a href="https://soundmindinvesting.org/">Sound Mind Investing</a>  </li></ul>Remember, you can call in to ask your questions most days at (800) 525-7000. Faith & Finance is also available on the <a href="https://www.moodyradio.org/programs/faith-and-finance/">Moody Radio Network</a> as well as <a href="https://afr.net/podcasts/faith-finance/">American Family Radio</a>. Visit our website at <a href="https://www.faithfi.com/">FaithFi.com</a>where you can join the FaithFi Community, <a href="https://faithfi.netviewshop.com/donate2">and give</a> as we expand our outreach.

FaithFi

Faith & Finance is a daily radio ministry hosted by Rob West. The program offers a practical, biblical and good-natured approach to managing your time, talents and resources.

Faith & Finance with Rob West

The average person makes 35,000 decisions a day … and one of them just might be: “Traditional IRA or Roth? We get that question a lot, as folks try to decide which type of retirement account will put them money ahead in the long run. Mark Biller joins us today to take a fresh look at the problem.

Roth Over a Traditional IRA? With Mark Biller

FaithFi: Faith & Finance | Oct 17, 2023

Show Notes

Where Faith Meets Finance

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