August 31, 2025 • 30 mins
In this episode, we’ll revisit the main lesson of a Suze School explaining why a Roth retirement account ultimately gives you more money than a pre-tax retirement account.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Robert (00:06):
August 31, 2025. Welcome to the Women and Money podcast,
as well as everyone smart enough to listen. Robert, the
producer here, we hope you're enjoying the long Labor Day
weekend and taking a break from work. In fact, today,
Suze is taking a break from work as well, but
that doesn't mean you don't get a podcast.
We're gonna play for you today the main part of
(00:28):
an episode that we originally dropped in April of last year.
And when we think about the theme of this year, right?
Make your money, make more money, this episode really ties
into that theme.
And based on some of the emails and questions that
have come in from you, it is absolutely time to
bring this particular subject back to the top of the feed.
(00:52):
So enjoy, and Suze and KT will be with you
this Thursday.
Suze (00:57):
I have told you over and over again the only
way to be investing in the stock market.
Is through dollar cost averaging where every month or every
three months or every six months if there is something
that you own and it goes down, you buy a
(01:19):
little more. If it continues to go down, you buy
a little more. So here's a little thing that every
one of you needs to do.
I want you to look at every single stock that
you have, every single ETF that you have right here
and right now, because the truth of the matter is
(01:40):
you don't know what the stock market's going to do
next week or five weeks from now or three years
from now, but right here and right now you know
exactly what you have. So let's say you have a
stock and it's worth $20,000 today.
I want you to ask yourself the question. If you
did not own that stock today and you had $20,000
(02:04):
in cash, would you buy that stock today?
If the answer to that is yes, then you keep
what you have.
If the answer to that is no, I would not.
Then you better think about selling it seriously.
(02:25):
And if the answer is I don't know what I
would do and just sell half, obviously you have to
remember that if you have a stock that is outside
of a retirement account that you have not held right
this down, that you have not held for over one year.
(02:45):
If you sell it and you have a gain in it,
you are going to pay ordinary income taxes on that gain.
Maybe you're going to lose 20% to taxes, so maybe
you just keep the stock.
Cause if it goes down 20%, it would be the
same as if you sold it and had to pay
ordinary income tax on it. You have to think about that.
(03:08):
Maybe you have a stock that you have a loss in.
Again outside of a retirement account.
And you won't buy it again. All right, sell it
and take the loss off your taxes, just that simple.
Maybe you have a stock then that you have a
gain in that you wouldn't buy again. All right, sell
(03:32):
that possibly and offset your loss with your gain, but
you have to look at what you have and not
just sit there and not know what to do. If
it were up to me telling you all what to do,
I would say if you own good quality stocks, ETFs,
mutual funds, if you have 10, 20, or 30 years
(03:53):
or longer till you need the money.
Can you just sit tight and as the markets may
go down.
You might want to buy more.
You could sell it here if you wanted to, but
I'm here to tell you, chances are you're not going
to get back in, and it goes up above where
(04:15):
you sold it. You are not going to be a
happy camper. Now I can tell you that because I
did that myself.
Years ago I bought a stock and I watched it
go up and up and up and up and it
had gone all the way up to like $1,100 a share.
And now I have a whole lot of gain in
(04:37):
it even though I'd have to pay taxes on it.
And now I'm getting nervous. I just got nervous. I
don't know why. And so I decided, oh, I'm going
to sell it even though I like the stock. I
sold it and I had to pay capital gains tax
on it, OK.
And then the stock started to go down and down
and down, and I was so happy that it was
(04:59):
going down because it proved that I was right, that
I should have sold it.
And all of a sudden it's going down a few
100 points, OK, and then it turns around and it
goes right back up to $1,500 a share.
And I'm like, no, no, are you kidding me?
Don't think you're going to be out guessing what these stocks, ETFs,
(05:24):
these markets are going to do. You cannot outguess it.
So prepare yourselves. Put on your financial safety jackets cause
just in case it gets a little bumpy, you'll be OK.
You'll be OK, especially if your dollar cost averaging.
(05:44):
So, I just want to say that to you and
just know when these markets go down, especially in retirement
accounts where you are investing month in and month out
or every paycheck, however you do it.
And the money's going into ETFs. You should be so happy.
I meant what I said that if these markets go
(06:06):
down and your dollar cost averaging automatically from a paycheck
in a retirement account.
The more it goes down, the more shares you buy,
and eventually when it turns around, the more money you make.
One thing that is very important when you are looking
at your statements, and this just happened with KT, believe
(06:29):
it or not, about three weeks ago.
She comes into my little office and she says, Look
at this. I said, What do you want me to
look at? She said, Look at these statements, Suze. KT
goes over them like a hawk. I'm telling you, every
single month, every single line she's looking at, we lost here,
(06:51):
we gained here, whatever it is, and that's fine. I
like that she does that and she takes an interest
in it. She goes, Can you believe how much money
we have made since January?
And I look at her and I said, KT, we
haven't made a penny. She says, What are you talking about?
Look at this, Suze. I said, KT, we only make
(07:12):
that money when we have sold, and we're not selling.
We like what we own. If it goes down, we'll
buy more of it, but we are not selling, so
don't look at it like we have that much money,
because until we sell, we don't have that much money.
(07:35):
And I think a lot what has been happening in
the United States of America, believe it or not, in
terms of inflation, is that so many of you have
been looking at your 401K statements or 403B or TSP
statements or whatever they are, and they've gone up so
much over the past six months that you actually feel wealthy.
(08:00):
And because you feel wealthier, maybe wealthier than you ever felt.
Then you feel OK about going out and spending money.
That's why on some level I have to tell you
I don't think inflation is necessarily coming down because the
economy is still too strong, and it's strong because of
(08:23):
how much money is being spent.
Please remember everybody that what you see, especially if it
is a pretext retirement account, what you see is not
what you get.
You do not own all of that money.
(08:46):
You are in partnership with Uncle Sam on every single
penny that is in a pre-taxed retirement account.
Because later on in life when you have to take
it out, remember you don't have a choice. You have
got to eventually take required minimum distributions. Your partner in
(09:11):
crime here is Uncle Sam.
And he will take whatever percentage that is in there
that he wants to at that time. And when you
have debts and deficits that are facing the United States
of America like they are right now, do you honest
(09:34):
to God believe that 30 years from now, 20 years
from now, tax brackets won't be higher than they are
right now.
But all of you argue with me. You argue with
me and say, Suze.
I'm in a high tax bracket.
(09:54):
I'm 50 years of age. I want my tax bracket
now going into a Roth retirement account. There's no time.
It makes no sense. I know what I'm doing and
my financial adviser tells me, you're wrong, Suze Orman. Do
you have any idea how crazy, how absolute crazy that
(10:16):
makes me. So therefore I'm going to do a comparison
right now.
Between a Roth retirement account and a pre-tax retirement account
for somebody who's just starting right now in their 50s
and settle this stupid argument once and for all. However,
(10:38):
before I do that, there is something that I need
to do. There is a woman by the name of
Paula whose husband died a few months ago.
And Paula wrote and said, I need help, Suze. I
don't know what to do with this and these things.
I have three or four kids. Can you please help me?
(11:02):
And I called Paula to help her, but the problem
is Paula isn't necessarily sure that it's me. She is
in shock number one. She can't believe that Suze Orman
called her.
And number two, Suze Orman said to her, Paula, you
(11:22):
can't trust my voice because of artificial intelligence. I don't
even know if I were to FaceTime you, you would
be able to trust it because of everything that's going
on with artificial intelligence. So I know what I'll do, Paula,
on my podcast.
Today I will talk about this so that you know
(11:44):
without a shadow of a doubt it was me who
was telling you what to do, so I just wanted
to get that in and not forget it. All right,
I want all of you right here and right now.
I want you to write down everything that I am
(12:06):
about to tell you.
Because if these numbers work at 50.
Think about if you started a Roth retirement account at
25 or 30 or 35. So worst case scenario, and
this is a real example, and this just happened to
(12:27):
me on Friday on a telephone call that I was
having with somebody who wants me to do something for
their company, all right.
And then of course we always talk about their own
money somehow I don't know why that is. It always
at the end of the conversation they tell me what
they're doing and then I'm like, You're kidding. You're not
(12:49):
doing that, are you? And then I try to set
them straight. So in this particular situation, this person's financial
adviser has convinced them that the best thing that they
can be doing is putting money maxing out.
The 401k at work pre-tax and when I said what.
(13:14):
And they said, Susie, I'm 50 years of age. I'm
getting older now. I make approximately $300,000 a year. It's
a huge tax write off for me, and I've gone
over the numbers, and this is what my adviser is
telling me to do. Well, after 30 minutes of arguing
with him, he still didn't believe me, I can tell
(13:35):
you that. So let me just do the numbers for him,
but for all of you as well.
I want you to write everything down. This person that
I spoke to was 50 years of age, and he
makes approximately $300,000 a year. Now listen, if it works
(13:57):
with $300,000 which is a good sum of money, puts
this person in a high tax bracket, of course, an
adviser would say, you want a tax write off.
If it works in a high tax bracket, it even
works better in a lower tax bracket. OK, so.
(14:18):
He makes 300,000 a year.
And he is putting $30,000 a year, which is the
maximum that you can put into a 401k this year,
and he's doing it every year for the next 20 years.
Let's just make that assumption because I don't know what
the maximum will be in future years. So just let's
(14:40):
assume that that's all he puts in for the next
20 years.
We're not gonna consider a match. Let's just pretend that
his company does not match. And let's also assume that
over those 20 years he's averaged approximately 7% on his money.
(15:03):
Let's just do that for simplistic sake, OK.
If that were true, at 70 years of age, he
would have approximately $1.3 million and now he's no longer
working and he simply does what he takes the $1.3 million.
(15:26):
And he rolls it over to an IRA rollover.
Cause he now wants to invest it very securely because
he doesn't want anything else to happen to it.
So now he rolls it over and he invests 4%
(15:47):
of it in treasuries, OK.
And at the age of 75, he now has $1.6 million.
Now just put a pin in that for one second.
Remember if you were born 1960 or later.
(16:09):
The new required minimum distribution age is 75, so because
he is currently only 50, he will not need to
take out required minimum distributions till he is 75. And
let's just assume he did very well for himself. He
(16:32):
made all of this money.
And he's invested it wisely. He owns his house outright,
very little expenses. Everything is great for him, and he
so wishes that he didn't have to take out required
minimum distributions.
Because he doesn't need to, but yet he does not
(16:56):
have a choice. He has got to take out required
minimum distributions, and he has lived his life in such
a way. Let's just assume this, that he has other income.
But he only has $50,000 a year of taxable income
(17:20):
besides his required minimum distributions that he will be taking out.
If he starts to take out required minim distributions, which
he has to at the age of 75.
The very first year, he will take out approximately $58,000
and then $60,000 and then $62,000 and every year as
(17:43):
he gets older, it goes up approximately $2,000 to $3,000
a year.
And the IRS truthfully, according to life expectancy tables expect
him to live till about let's just say 89 years
of age, and by that time he's required to take
(18:03):
out $100,000 as a required minimum distribution. Now the true
question becomes how much did he totally have to take
out of this account
in required minimum distributions, and the answer to that is $1,202,897.
(18:35):
It was required over those 14 years to take out
$1.2 million that he will owe ordinary income taxes on.
At whatever tax bracket Uncle Sam puts into place again, however,
(18:59):
we are going to assume that tax brackets stay exactly
as they are right now, which is the lowest income
tax brackets any of us have been in in years.
And we're just going to assume they stay this low,
although I would make a bet with any of you
(19:20):
that is not going to happen, but I'm just going
to give this example, assuming that we stay at the
tax brackets we are right now. And if that is true,
he's going to end up paying at least $313,000 in taxes.
(19:44):
Over the next 14 years as he's taking the money out.
Now again, what did he save in taxes when he
put the money in?
He saved approximately $144,000.
(20:06):
Now that's a lot of money.
But do you understand that really what's happening here is
Uncle Sam is just giving you a loan?
A loan in this case of $144,000.
And over the years, Uncle Sam's going to get back
(20:29):
at least $313,000.
Think about that.
When you put money in a pre-tax retirement account.
You put in an amount of money. Please listen to
me closely now.
You're putting in money and it is growing and growing
(20:53):
and growing and growing in this example.
This person only put in $600,000 over those 20 years.
But because of compounding.
It's now worth 1.6 million at the age of 75.
(21:19):
So Uncle Sam is going to get taxes on that
extra million dollars of growth above what he put in.
Do you see that?
He put in 600,000. It's now worth 1.6 million.
(21:40):
Forget the $600,000 he put in. It grew by $1 million.
And Uncle Sam gets to have taxes on that $1 million.
Plus he gets back the taxes he gave you over
(22:00):
all those years on that $600,000 that you put in.
Think about it. Think about it.
Why do you think they want you to do this?
Because they know exactly they are going to make a
(22:22):
lot of money off of you. Do you all hear
what I'm saying?
Even if he had saved $200,000 in taxes.
That's still a lot less than 313,000 that he will
owe and in reality.
(22:43):
20 years from now he may owe a whole lot more,
but wait, I'm continuing on with this example.
Even though he took out approximately the $1.2 million in
our MDs, he still has remaining in that account.
(23:06):
About $433,000 because that money has been growing all those
years that he's been taking out RMDs and now let's
assume that he dies at the age of 89.
And now his children.
Get the money.
(23:27):
They now have to continue to take the money out
of this inherited IRA that they just got.
And they have to wipe it clean totally within 10 years,
so chances are they're going to take out $45 to
$50,000 a year.
(23:49):
If they do that, we don't know what tax bracket
they're in, but let's just say they're in an average
tax bracket as well. They're going to probably pay at
least another $100,000 in income taxes to get that money
and truthfully everybody probably a whole lot more.
(24:11):
So given that, between what this guy is going to
pay in income taxes, 313,000, at least the 100,000 his
kids are going to have to pay.
Now they have paid jointly $413,000 in taxes based on
(24:32):
today's tax structure.
Versus the $144,000 or even the $200,000 of a tax
write-off that he got.
Am I making sense to all of you, so now
you're saying, well, Suze.
You want him to do a wroth. You're wroth crazy,
(24:54):
so do the numbers for me with a Roth. Oh,
thank you very much for asking.
OK, he's still 50. He makes $300,000 a year, no problem,
but instead of putting in $30,000 a year for the
next 20 years, we have to take away the $7,200
(25:16):
in tax that we're going to have to pay on
that $30,000 now because we did not do a pre-tax 401k.
So for the next 20 years.
He's only going to be investing $22,800 a year in
the Roth 401k versus the $30,000. OK. Still an annual
(25:41):
average rate of return of 7%. Just stick with me here.
This is just an example. Don't go crazy. It's just
trying to equal things out, all right, everybody, at the
age of 70.
He would have only $1 million in his Roth 401k
versus the $1.3 million he would have had in his
(26:04):
traditional 401k. All right.
But now he takes it and does an IRA roll
over with it, makes again 4% on it, put it
all in treasuries, and at the age of 75, he
now will have $1.2 million versus $1.6 million 400,000 dollars difference, OK.
(26:30):
But here's the big difference. He doesn't want to take
our MDs out. He doesn't want to touch the money.
He actually wants to leave it to his kids. He
doesn't need it.
All right, now, the 1.2 million at just a 4%
(26:50):
interest rate, it's in treasuries, it's in a CD.
So at the age of 89 is going to be
worth $2.1 million and now he dies. Now, guess what?
Now it passes down to his kids and because it's
in a Roth IRA.
(27:12):
They don't have to touch it for 10 years. They
don't have to take out any required minimum distributions. They
have 10 years for it to grow tax free, so
they just leave it there cause they were listening to
the Women and Money podcast and they heard Suze Orman say,
if you're ever in this situation and you don't need it,
(27:34):
just leave it there till the 10th year if it's
in a Roth.
And then take 100% of it out in the 10th year.
All right.
So 10 years from now when they inherit $2.1 million
their inherited IRA because it's a Roth, will be worth
(27:58):
$3.1 million everybody that will pass to the kids absolutely
tax free.
I just want you to think about that.
Big, big difference. Now, a lot of you will say,
(28:19):
but yeah, Suze, he took out the 50 some odd
thousdand a year or whatever, and maybe he invested it.
I don't care. I don't care.
I just want you to stop finding excuses for why
you think a traditional or a pre-taxed retirement account is
the way for you to go. I want you to
(28:41):
stop the excuses of you are 60 years of age,
you're 50, you make too much money. It's too late.
It is never too late to be smart with your money.
Do you hear me?
So you can continue to do what you're doing.
But I'm here to tell you, if you really want
(29:02):
to be smart with your money, you will listen to
this podcast over and over again, you'll do the numbers.
Maybe you won't agree with me with the numbers, fine,
do the numbers yourself.
But I am telling you, in the long run, don't
become partners with Uncle Sam. Be in business with yourself.
(29:24):
Buy Uncle Sam out every single year so you don't
have to deal with him any more.
You know, just think about it that way. And then,
no matter what, it's 100% yours when you look at
your statements, it's 100% yours for those of you who
(29:44):
have traditional 401ks or whatever it is, when you look
at your statement, you better take a good 20 or 30%
away if not more, because that's Uncle Sam's cut.
Was it worth it for a tax write off? Really?
Not in the long run. All right, everybody, there's only
one thing that I want you to remember when it
(30:05):
comes to your money, and it is this people first,
that's you, everybody, not Uncle Sam. That's you. People first,
then money, then things. Can you tell that this topic
has absolutely aggravated me? All right.
So just stay safe, and if you listen to me
you will become financially unstoppable.
August 31, 2025. Welcome to the Women and Money podcast,
as well as everyone smart enough to listen. Robert, the
producer here, we hope you're enjoying the long Labor Day
weekend and taking a break from work. In fact, today,
Suze is taking a break from work as well, but
that doesn't mean you don't get a podcast.
We're gonna play for you today the main part of
(00:28):
an episode that we originally dropped in April of last year.
And when we think about the theme of this year, right?
Make your money, make more money, this episode really ties
into that theme.
And based on some of the emails and questions that
have come in from you, it is absolutely time to
bring this particular subject back to the top of the feed.
(00:52):
So enjoy, and Suze and KT will be with you
this Thursday.
Suze (00:57):
I have told you over and over again the only
way to be investing in the stock market.
Is through dollar cost averaging where every month or every
three months or every six months if there is something
that you own and it goes down, you buy a
(01:19):
little more. If it continues to go down, you buy
a little more. So here's a little thing that every
one of you needs to do.
I want you to look at every single stock that
you have, every single ETF that you have right here
and right now, because the truth of the matter is
(01:40):
you don't know what the stock market's going to do
next week or five weeks from now or three years
from now, but right here and right now you know
exactly what you have. So let's say you have a
stock and it's worth $20,000 today.
I want you to ask yourself the question. If you
did not own that stock today and you had $20,000
(02:04):
in cash, would you buy that stock today?
If the answer to that is yes, then you keep
what you have.
If the answer to that is no, I would not.
Then you better think about selling it seriously.
(02:25):
And if the answer is I don't know what I
would do and just sell half, obviously you have to
remember that if you have a stock that is outside
of a retirement account that you have not held right
this down, that you have not held for over one year.
(02:45):
If you sell it and you have a gain in it,
you are going to pay ordinary income taxes on that gain.
Maybe you're going to lose 20% to taxes, so maybe
you just keep the stock.
Cause if it goes down 20%, it would be the
same as if you sold it and had to pay
ordinary income tax on it. You have to think about that.
(03:08):
Maybe you have a stock that you have a loss in.
Again outside of a retirement account.
And you won't buy it again. All right, sell it
and take the loss off your taxes, just that simple.
Maybe you have a stock then that you have a
gain in that you wouldn't buy again. All right, sell
(03:32):
that possibly and offset your loss with your gain, but
you have to look at what you have and not
just sit there and not know what to do. If
it were up to me telling you all what to do,
I would say if you own good quality stocks, ETFs,
mutual funds, if you have 10, 20, or 30 years
(03:53):
or longer till you need the money.
Can you just sit tight and as the markets may
go down.
You might want to buy more.
You could sell it here if you wanted to, but
I'm here to tell you, chances are you're not going
to get back in, and it goes up above where
(04:15):
you sold it. You are not going to be a
happy camper. Now I can tell you that because I
did that myself.
Years ago I bought a stock and I watched it
go up and up and up and up and it
had gone all the way up to like $1,100 a share.
And now I have a whole lot of gain in
(04:37):
it even though I'd have to pay taxes on it.
And now I'm getting nervous. I just got nervous. I
don't know why. And so I decided, oh, I'm going
to sell it even though I like the stock. I
sold it and I had to pay capital gains tax
on it, OK.
And then the stock started to go down and down
and down, and I was so happy that it was
(04:59):
going down because it proved that I was right, that
I should have sold it.
And all of a sudden it's going down a few
100 points, OK, and then it turns around and it
goes right back up to $1,500 a share.
And I'm like, no, no, are you kidding me?
Don't think you're going to be out guessing what these stocks, ETFs,
(05:24):
these markets are going to do. You cannot outguess it.
So prepare yourselves. Put on your financial safety jackets cause
just in case it gets a little bumpy, you'll be OK.
You'll be OK, especially if your dollar cost averaging.
(05:44):
So, I just want to say that to you and
just know when these markets go down, especially in retirement
accounts where you are investing month in and month out
or every paycheck, however you do it.
And the money's going into ETFs. You should be so happy.
I meant what I said that if these markets go
(06:06):
down and your dollar cost averaging automatically from a paycheck
in a retirement account.
The more it goes down, the more shares you buy,
and eventually when it turns around, the more money you make.
One thing that is very important when you are looking
at your statements, and this just happened with KT, believe
(06:29):
it or not, about three weeks ago.
She comes into my little office and she says, Look
at this. I said, What do you want me to
look at? She said, Look at these statements, Suze. KT
goes over them like a hawk. I'm telling you, every
single month, every single line she's looking at, we lost here,
(06:51):
we gained here, whatever it is, and that's fine. I
like that she does that and she takes an interest
in it. She goes, Can you believe how much money
we have made since January?
And I look at her and I said, KT, we
haven't made a penny. She says, What are you talking about?
Look at this, Suze. I said, KT, we only make
(07:12):
that money when we have sold, and we're not selling.
We like what we own. If it goes down, we'll
buy more of it, but we are not selling, so
don't look at it like we have that much money,
because until we sell, we don't have that much money.
(07:35):
And I think a lot what has been happening in
the United States of America, believe it or not, in
terms of inflation, is that so many of you have
been looking at your 401K statements or 403B or TSP
statements or whatever they are, and they've gone up so
much over the past six months that you actually feel wealthy.
(08:00):
And because you feel wealthier, maybe wealthier than you ever felt.
Then you feel OK about going out and spending money.
That's why on some level I have to tell you
I don't think inflation is necessarily coming down because the
economy is still too strong, and it's strong because of
(08:23):
how much money is being spent.
Please remember everybody that what you see, especially if it
is a pretext retirement account, what you see is not
what you get.
You do not own all of that money.
(08:46):
You are in partnership with Uncle Sam on every single
penny that is in a pre-taxed retirement account.
Because later on in life when you have to take
it out, remember you don't have a choice. You have
got to eventually take required minimum distributions. Your partner in
(09:11):
crime here is Uncle Sam.
And he will take whatever percentage that is in there
that he wants to at that time. And when you
have debts and deficits that are facing the United States
of America like they are right now, do you honest
(09:34):
to God believe that 30 years from now, 20 years
from now, tax brackets won't be higher than they are
right now.
But all of you argue with me. You argue with
me and say, Suze.
I'm in a high tax bracket.
(09:54):
I'm 50 years of age. I want my tax bracket
now going into a Roth retirement account. There's no time.
It makes no sense. I know what I'm doing and
my financial adviser tells me, you're wrong, Suze Orman. Do
you have any idea how crazy, how absolute crazy that
(10:16):
makes me. So therefore I'm going to do a comparison
right now.
Between a Roth retirement account and a pre-tax retirement account
for somebody who's just starting right now in their 50s
and settle this stupid argument once and for all. However,
(10:38):
before I do that, there is something that I need
to do. There is a woman by the name of
Paula whose husband died a few months ago.
And Paula wrote and said, I need help, Suze. I
don't know what to do with this and these things.
I have three or four kids. Can you please help me?
(11:02):
And I called Paula to help her, but the problem
is Paula isn't necessarily sure that it's me. She is
in shock number one. She can't believe that Suze Orman
called her.
And number two, Suze Orman said to her, Paula, you
(11:22):
can't trust my voice because of artificial intelligence. I don't
even know if I were to FaceTime you, you would
be able to trust it because of everything that's going
on with artificial intelligence. So I know what I'll do, Paula,
on my podcast.
Today I will talk about this so that you know
(11:44):
without a shadow of a doubt it was me who
was telling you what to do, so I just wanted
to get that in and not forget it. All right,
I want all of you right here and right now.
I want you to write down everything that I am
(12:06):
about to tell you.
Because if these numbers work at 50.
Think about if you started a Roth retirement account at
25 or 30 or 35. So worst case scenario, and
this is a real example, and this just happened to
(12:27):
me on Friday on a telephone call that I was
having with somebody who wants me to do something for
their company, all right.
And then of course we always talk about their own
money somehow I don't know why that is. It always
at the end of the conversation they tell me what
they're doing and then I'm like, You're kidding. You're not
(12:49):
doing that, are you? And then I try to set
them straight. So in this particular situation, this person's financial
adviser has convinced them that the best thing that they
can be doing is putting money maxing out.
The 401k at work pre-tax and when I said what.
(13:14):
And they said, Susie, I'm 50 years of age. I'm
getting older now. I make approximately $300,000 a year. It's
a huge tax write off for me, and I've gone
over the numbers, and this is what my adviser is
telling me to do. Well, after 30 minutes of arguing
with him, he still didn't believe me, I can tell
(13:35):
you that. So let me just do the numbers for him,
but for all of you as well.
I want you to write everything down. This person that
I spoke to was 50 years of age, and he
makes approximately $300,000 a year. Now listen, if it works
(13:57):
with $300,000 which is a good sum of money, puts
this person in a high tax bracket, of course, an
adviser would say, you want a tax write off.
If it works in a high tax bracket, it even
works better in a lower tax bracket. OK, so.
(14:18):
He makes 300,000 a year.
And he is putting $30,000 a year, which is the
maximum that you can put into a 401k this year,
and he's doing it every year for the next 20 years.
Let's just make that assumption because I don't know what
the maximum will be in future years. So just let's
(14:40):
assume that that's all he puts in for the next
20 years.
We're not gonna consider a match. Let's just pretend that
his company does not match. And let's also assume that
over those 20 years he's averaged approximately 7% on his money.
(15:03):
Let's just do that for simplistic sake, OK.
If that were true, at 70 years of age, he
would have approximately $1.3 million and now he's no longer
working and he simply does what he takes the $1.3 million.
(15:26):
And he rolls it over to an IRA rollover.
Cause he now wants to invest it very securely because
he doesn't want anything else to happen to it.
So now he rolls it over and he invests 4%
(15:47):
of it in treasuries, OK.
And at the age of 75, he now has $1.6 million.
Now just put a pin in that for one second.
Remember if you were born 1960 or later.
(16:09):
The new required minimum distribution age is 75, so because
he is currently only 50, he will not need to
take out required minimum distributions till he is 75. And
let's just assume he did very well for himself. He
(16:32):
made all of this money.
And he's invested it wisely. He owns his house outright,
very little expenses. Everything is great for him, and he
so wishes that he didn't have to take out required
minimum distributions.
Because he doesn't need to, but yet he does not
(16:56):
have a choice. He has got to take out required
minimum distributions, and he has lived his life in such
a way. Let's just assume this, that he has other income.
But he only has $50,000 a year of taxable income
(17:20):
besides his required minimum distributions that he will be taking out.
If he starts to take out required minim distributions, which
he has to at the age of 75.
The very first year, he will take out approximately $58,000
and then $60,000 and then $62,000 and every year as
(17:43):
he gets older, it goes up approximately $2,000 to $3,000
a year.
And the IRS truthfully, according to life expectancy tables expect
him to live till about let's just say 89 years
of age, and by that time he's required to take
(18:03):
out $100,000 as a required minimum distribution. Now the true
question becomes how much did he totally have to take
out of this account
in required minimum distributions, and the answer to that is $1,202,897.
(18:35):
It was required over those 14 years to take out
$1.2 million that he will owe ordinary income taxes on.
At whatever tax bracket Uncle Sam puts into place again, however,
(18:59):
we are going to assume that tax brackets stay exactly
as they are right now, which is the lowest income
tax brackets any of us have been in in years.
And we're just going to assume they stay this low,
although I would make a bet with any of you
(19:20):
that is not going to happen, but I'm just going
to give this example, assuming that we stay at the
tax brackets we are right now. And if that is true,
he's going to end up paying at least $313,000 in taxes.
(19:44):
Over the next 14 years as he's taking the money out.
Now again, what did he save in taxes when he
put the money in?
He saved approximately $144,000.
(20:06):
Now that's a lot of money.
But do you understand that really what's happening here is
Uncle Sam is just giving you a loan?
A loan in this case of $144,000.
And over the years, Uncle Sam's going to get back
(20:29):
at least $313,000.
Think about that.
When you put money in a pre-tax retirement account.
You put in an amount of money. Please listen to
me closely now.
You're putting in money and it is growing and growing
(20:53):
and growing and growing in this example.
This person only put in $600,000 over those 20 years.
But because of compounding.
It's now worth 1.6 million at the age of 75.
(21:19):
So Uncle Sam is going to get taxes on that
extra million dollars of growth above what he put in.
Do you see that?
He put in 600,000. It's now worth 1.6 million.
(21:40):
Forget the $600,000 he put in. It grew by $1 million.
And Uncle Sam gets to have taxes on that $1 million.
Plus he gets back the taxes he gave you over
(22:00):
all those years on that $600,000 that you put in.
Think about it. Think about it.
Why do you think they want you to do this?
Because they know exactly they are going to make a
(22:22):
lot of money off of you. Do you all hear
what I'm saying?
Even if he had saved $200,000 in taxes.
That's still a lot less than 313,000 that he will
owe and in reality.
(22:43):
20 years from now he may owe a whole lot more,
but wait, I'm continuing on with this example.
Even though he took out approximately the $1.2 million in
our MDs, he still has remaining in that account.
(23:06):
About $433,000 because that money has been growing all those
years that he's been taking out RMDs and now let's
assume that he dies at the age of 89.
And now his children.
Get the money.
(23:27):
They now have to continue to take the money out
of this inherited IRA that they just got.
And they have to wipe it clean totally within 10 years,
so chances are they're going to take out $45 to
$50,000 a year.
(23:49):
If they do that, we don't know what tax bracket
they're in, but let's just say they're in an average
tax bracket as well. They're going to probably pay at
least another $100,000 in income taxes to get that money
and truthfully everybody probably a whole lot more.
(24:11):
So given that, between what this guy is going to
pay in income taxes, 313,000, at least the 100,000 his
kids are going to have to pay.
Now they have paid jointly $413,000 in taxes based on
(24:32):
today's tax structure.
Versus the $144,000 or even the $200,000 of a tax
write-off that he got.
Am I making sense to all of you, so now
you're saying, well, Suze.
You want him to do a wroth. You're wroth crazy,
(24:54):
so do the numbers for me with a Roth. Oh,
thank you very much for asking.
OK, he's still 50. He makes $300,000 a year, no problem,
but instead of putting in $30,000 a year for the
next 20 years, we have to take away the $7,200
(25:16):
in tax that we're going to have to pay on
that $30,000 now because we did not do a pre-tax 401k.
So for the next 20 years.
He's only going to be investing $22,800 a year in
the Roth 401k versus the $30,000. OK. Still an annual
(25:41):
average rate of return of 7%. Just stick with me here.
This is just an example. Don't go crazy. It's just
trying to equal things out, all right, everybody, at the
age of 70.
He would have only $1 million in his Roth 401k
versus the $1.3 million he would have had in his
(26:04):
traditional 401k. All right.
But now he takes it and does an IRA roll
over with it, makes again 4% on it, put it
all in treasuries, and at the age of 75, he
now will have $1.2 million versus $1.6 million 400,000 dollars difference, OK.
(26:30):
But here's the big difference. He doesn't want to take
our MDs out. He doesn't want to touch the money.
He actually wants to leave it to his kids. He
doesn't need it.
All right, now, the 1.2 million at just a 4%
(26:50):
interest rate, it's in treasuries, it's in a CD.
So at the age of 89 is going to be
worth $2.1 million and now he dies. Now, guess what?
Now it passes down to his kids and because it's
in a Roth IRA.
(27:12):
They don't have to touch it for 10 years. They
don't have to take out any required minimum distributions. They
have 10 years for it to grow tax free, so
they just leave it there cause they were listening to
the Women and Money podcast and they heard Suze Orman say,
if you're ever in this situation and you don't need it,
(27:34):
just leave it there till the 10th year if it's
in a Roth.
And then take 100% of it out in the 10th year.
All right.
So 10 years from now when they inherit $2.1 million
their inherited IRA because it's a Roth, will be worth
(27:58):
$3.1 million everybody that will pass to the kids absolutely
tax free.
I just want you to think about that.
Big, big difference. Now, a lot of you will say,
(28:19):
but yeah, Suze, he took out the 50 some odd
thousdand a year or whatever, and maybe he invested it.
I don't care. I don't care.
I just want you to stop finding excuses for why
you think a traditional or a pre-taxed retirement account is
the way for you to go. I want you to
(28:41):
stop the excuses of you are 60 years of age,
you're 50, you make too much money. It's too late.
It is never too late to be smart with your money.
Do you hear me?
So you can continue to do what you're doing.
But I'm here to tell you, if you really want
(29:02):
to be smart with your money, you will listen to
this podcast over and over again, you'll do the numbers.
Maybe you won't agree with me with the numbers, fine,
do the numbers yourself.
But I am telling you, in the long run, don't
become partners with Uncle Sam. Be in business with yourself.
(29:24):
Buy Uncle Sam out every single year so you don't
have to deal with him any more.
You know, just think about it that way. And then,
no matter what, it's 100% yours when you look at
your statements, it's 100% yours for those of you who
(29:44):
have traditional 401ks or whatever it is, when you look
at your statement, you better take a good 20 or 30%
away if not more, because that's Uncle Sam's cut.
Was it worth it for a tax write off? Really?
Not in the long run. All right, everybody, there's only
one thing that I want you to remember when it
(30:05):
comes to your money, and it is this people first,
that's you, everybody, not Uncle Sam. That's you. People first,
then money, then things. Can you tell that this topic
has absolutely aggravated me? All right.
So just stay safe, and if you listen to me
you will become financially unstoppable.
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