Dan Caplinger

The ordering rules, when you take money out, the IRS is willing to say, okay, yeah, we're going to treat it like you're taking those contributions back out first.

And so a lot of folks end up using Roth IRAs as much as savings account, as for a retirement account.

It's kind of that optionality you were talking about, bro.

You always say, ideally, you keep it in there until retirement.

But if you need it before, you can always get those contributions back.

With a traditional IRA, that is not the case.

You try to take those contributions out, you're going to get whacked with not just the taxes, but also a penalty on top of that.

So one of the things that a lot of families end up being surprised by is when a person has a big traditional IRA, traditional 401K balance, and they pass away and they leave it to kids,

the kids end up having to pay the taxes on the distributions.

And in a lot of those cases, the retiree, they weren't working, their income was relatively low.

The kids might be in the prime of their career, highest earning potential, highest tax brackets.

One benefit of the Roth is,

The heirs who take the Roth after you pass away, they also get that tax-free treatment.

There's a limited amount of time.

Some of the rules are a little bit complex, but you do get to grandfather in, in many cases, 10 years of tax-free treatment above and beyond what the person who passed away would have gotten.

Yeah, I came up with four of them.

The first one is that there's always a chance when you make a contribution or especially when you do a conversion that the market is going to drop immediately after you do it.

There used to be a rule that said you could kind of undo the conversion or the contribution in that situation.

That rule went away.

And so what happens is that oftentimes, especially the conversion, you're paying tax on the amount that you convert.