Michael Pollack

speaker

119 appearances 2 recordings 1 series first heard Apr 2022 last heard Jun 2023

Michael Pollack’s voice in public audio — every appearance, attributed to the second.

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WSJ Your Money Briefing · Why You Should Consider Having Both a 401(k) and an IRA · 6 Jun 2023 podcast

If you take the $22,500 that you contribute to the 401 and you add the $6,500 that you're contributing to an IRA, that's essentially almost 30% more per year.

And the other thing is the IRS from time to time increases

those limits so over time you could be contributing more.

Well, it makes more work for someone who wants to keep an eye on both accounts.

Because the choices are so broad in an IRA, someone really has to think a little bit about how they want to invest that money.

There is a possibility also of racking up more fees or more trading costs if you have an IRA.

So you have to think a little bit about how you're going to invest that money in a cost-efficient way.

Well, so the biggest difference between the traditional IRA and the Roth IRA is

is the type of money that you're contributing.

With a traditional IRA, the money is on a pre-tax basis, which means that when you eventually start taking withdrawals from that IRA, that money is going to be taxed at your ordinary income rate.

With a Roth IRA, you are contributing after-tax money.

So that's money you've already paid tax on.

And if you follow the IRS rules to the letter, by the time you retire, then that money can come out possibly tax-free.

And the advantage of that is that if you have a large 401k plan and also a sizable IRA, if you're taking the required minimum distributions, which are what the monies are known as after you retire, starting to withdraw on those accounts, you could have a sizable tax liability and you don't really have a lot of control over how much income you're

you're getting from those two different accounts.

But on the other hand, if you have a Roth IRA and a 401k, then the money you take out of the Roth IRA is not being taxed and your overall tax liability could be lower.

That's right.

And you also have more flexibility about how much in distributions you're taking because with a Roth IRA, you don't have any required minimum distributions.

Now, there's this other newer account called a Roth 401k that more and more companies have started offering, and those are very similar to a Roth IRA.

Right now, they do have required minimum distributions, but that's going to change under the law in 2024.

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