Choosing the Right Retirement Account: Roth vs. Traditional and Beyond


Description

In this workshop, I broke down the big decision every investor faces: should you put money into a Traditional IRA/401(k) or a Roth IRA? We dug into how each works, the real cost of those “upfront tax breaks,” and why I believe paying tax on the seed (Roth) beats paying tax on the harvest (Traditional). I also walked you through other options like SEPs, SIMPLEs, Solo 401(k)s, HSAs, and ESAs — showing you how they work, their contribution limits, and where each one fits in your plan. By the end, you’ll know exactly which retirement accounts make the most sense for you and your family.


Key Takeaways

  • Traditional IRAs/401(k)s: You get a tax deduction now, but you’re taxed later at whatever rate the government sets.

  • Roth IRAs: No deduction today, but every dollar of growth comes out tax-free forever.

  • Tax brackets change — in retirement, the government decides your tax rate on traditional accounts.

  • “Would you ever make a deal where the other guy decides later how much you owe?” That’s the Traditional trap.

  • Roth wins because it locks in today’s tax rate and gives you lifetime tax-free income.

  • Income limits can block direct Roth contributions — but you can still use the backdoor Roth conversion.

  • You can keep contributing to a Roth after 70½ — unlike a Traditional.

  • SEPs and SIMPLEs allow bigger contributions if you’re self-employed.

  • HSAs (Health Savings Accounts): triple tax benefits — deductible going in, grows tax-free, and comes out tax-free for medical.

  • ESAs (Education Savings Accounts): $2,000 per child per year for education expenses, including private school.

  • Diversify accounts, but always prioritize growing your Roth — that’s your best, tax-free money.


Action Steps / Exercises

  1. Account Inventory: Write down which accounts you currently have (Traditional IRA, Roth, SEP, SIMPLE, 401k, HSA, ESA).

  2. Seed vs. Harvest Drill: Compare paying taxes on $5,000 now vs. paying taxes on $500,000 later. Which makes more sense?

  3. Income Limit Check: If your income is too high for direct Roth contributions, talk to your CPA about doing a backdoor Roth conversion.

  4. HSA Exercise: Write out your annual health expenses and see if an HSA could save you money and grow tax-free.

  5. ESA Plan: If you’ve got kids or grandkids, sketch out how $2,000/year in an ESA could cover private school or college costs.