- CNBC’s Jim Cramer tells investors the advantages and disadvantages of opening a Roth account.
- “When you’re trying to decide between a Roth IRA or 401(k) and a regular IRA or 401(k), you need to determine whether to pay income taxes with the Roth now or wait.” It’s more worthwhile to do and pay income taxes out of a regular account after you retire,” Cramer said. “In essence, you’re trying to figure out whether you’ll be in a higher tax bracket or a lower one when you retire.” level.”
CNBC’s Jim Cramer offers guidance on how investors can decide whether to put savings into Roth accounts. He explained that much of this decision has to do with how high you expect your income to be and whether you want to be taxed on your savings now or in the future.
He focused on Roth accounts because they relate to two different retirement accounts: 401(k)s and individual retirement accounts, or IRAs. The primary difference between Roth and non-Roth accounts is that money in a Roth is taxed when you put it in the account, not when you take it out years later, Cramer said.
“When you’re trying to decide between a Roth IRA or 401(k) and a regular IRA or 401(k), you need to determine whether to pay income taxes with the Roth now or wait.” It’s more worthwhile to do and pay income taxes out of a regular account after you retire,” Cramer said. “In essence, you’re trying to figure out whether you’ll be in a higher tax bracket or a lower one when you retire.” level.”
Cramer emphasized that there is no one-size-fits-all approach to this question, and some investors may be bound by their employer’s retirement account policies.
However, he added that a good rule of thumb for anyone whose marginal tax rate is below 22% is to take the loss upfront and allow the account to grow tax-free until retirement. Cramer also notes that Roth accounts give you the flexibility to withdraw the money you invest after five years without the 10% penalty.
“The lower your current income, the lower your tax rate,” Cramer said. “So, the less money you make, the more likely it is that a Roth is for you. It’s that simple. And when you’re saving for retirement, don’t worry about that 30 or 40 years in the future.” What could go catastrophically wrong – worry about making the best choice now.”
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