Episode Summary: "Roth IRA or Roth 401(k)?"

Podcast: Jill on Money with Jill Schlesinger
Host/Author: Audacy
Release Date: January 14, 2025

Introduction

In this episode of Jill on Money, host Jill Schlesinger, CFP®, delves into the nuances of retirement accounts, specifically comparing Roth IRAs and Roth 401(k)s. The episode features a series of listener questions that provide real-life scenarios, prompting Jill and her co-host Mark T. McGowan to offer tailored financial advice.

Listener Questions and Expert Analysis

1. Retirement Planning for Early Retirement ("Pseudo Retirement" at 58)

Timestamp: [03:41] - [07:48]

Listener Profile:

• Age: Both 55
• Assets:
  • $1.6 million in retirement savings (Roth IRA: $300k, Traditional IRA: $500k, Traditional 401(k): $800k)
  • $100k in a money market account
  • $100k in a 529 account for daughter’s education
• Income: Currently $250k annually
• Pension: $4,500/month starting in 2028, 100% survivable
• Social Security: Approximately $2,000/month each at full retirement age (67)
• Retirement Goal: $100k/year needed, aim to retire at 58

Discussion: Jill and Mark analyze the listener's plan to retire early by supplementing a part-time job to bridge the income gap until Social Security kicks in. They suggest:

• Maximizing Roth Contributions: To maintain tax efficiency.
• Drawing from Traditional 401(k): To manage taxable income effectively.
• Potential Plan Adjustments: Limiting further 401(k) contributions and enhancing non-retirement savings for flexibility.

Notable Quote: Jill Schlesinger states, “I think in these next few years, stop putting money into the 401(k) and just beef up your non-retirement savings... having some flexibility” ([06:45]).

2. Retirement Planning with Significant Age Difference in Partnership

Timestamp: [07:48] - [12:35]

Listener Profile:

• Age Difference: Partner is 64 (retired), listener is 46 (part-time, 30 hours/week)
• Income & Assets:
  • Listener: $110k in a 403(b), $14k in stocks
  • Partner: $123k in a 401(k) brokerage account
• Retirement Needs: Approximately $8,000 - $8,500/month
• Health Considerations: Listener is a breast cancer survivor with potential heart challenges

Discussion: Jill and Mark emphasize the complexities introduced by the 17-year age gap, highlighting:

• Social Security Strategies: Ensuring optimal claiming strategies based on marital status and age.
• Financial Coordination: Balancing retirement timelines and income streams to accommodate health and longevity.

Notable Quote: Mark T. McGowan remarks, “Nothing major. I'm going to assume that they've accounted for health care costs and their monthly spend. It’s doable” ([07:38]).

3. Choosing Between Roth IRA and Roth 401(k)

Timestamp: [12:35] - [15:00]

Listener Profile:

• Situation: High earner seeking to maximize Roth contributions
• Challenge: Income levels exceed Roth IRA eligibility thresholds
• Question: Should they prioritize a Roth 401(k) over attempting a backdoor Roth IRA?

Discussion: The conversation focuses on the benefits and practicalities of Roth 401(k)s versus Roth IRAs:

• Simplification: Favoring Roth 401(k) contributions when income restricts Roth IRA eligibility.
• Investment Flexibility: Roth 401(k)s often provide higher contribution limits and simplified tax benefits without the complexities of backdoor contributions.
• Future Considerations: Awareness of emerging products like Solo Roth 401(k)s, though still limited in accessibility.

Notable Quote: Mark T. McGowan advises, “I would just do the Roth 401(k). Unless he's thinking, oh, I can do the Roth IRA and then do all my pre-tax and save 30,000... Just do all Roth 401(k)” ([14:01]).

Key Insights and Takeaways

1. Roth vs. Traditional Retirement Accounts:

   • Roth 401(k)s offer higher contribution limits and immediate tax-free growth, making them advantageous for high earners who exceed Roth IRA limits.
   • Traditional IRAs and 401(k)s provide tax-deferred growth, beneficial for reducing taxable income in higher earning years.

2. Early Retirement Strategies:

   • Balancing part-time work with retirement savings can bridge income gaps.
   • Diversifying income streams—including pensions and Social Security—can enhance financial stability.

3. Age Differences in Couples:

   • Significant age gaps require tailored strategies for Social Security claiming and retirement funding to ensure both partners are financially secure.

4. Maximizing Retirement Savings:

   • Prioritizing retirement accounts that align with income levels and tax strategies is crucial.
   • Flexibility in savings strategies can provide a buffer against unforeseen financial needs.

Conclusion

In this episode, Jill Schlesinger and Mark T. McGowan provide comprehensive advice on navigating retirement planning complexities, particularly concerning Roth IRA and Roth 401(k) options. Their analysis underscores the importance of personalized financial strategies to accommodate diverse life situations and retirement goals.

Notable Quotes with Timestamps

• Jill Schlesinger: “I think in these next few years, stop putting money into the 401(k) and just beef up your non-retirement savings... having some flexibility” ([06:45]).
• Mark T. McGowan: “Nothing major. I'm going to assume that they've accounted for health care costs and their monthly spend. It’s doable” ([07:38]).
• Mark T. McGowan: “I would just do the Roth 401(k). Unless he's thinking, oh, I can do the Roth IRA and then do all my pre-tax and save 30,000... Just do all Roth 401(k)” ([14:01]).

Additional Resources

For more personalized advice or to submit your questions, visit jillonmoney.com and explore the free weekly newsletter or subscribe to Jill on Money Live for live webinars and bonus content.

Note: This summary excludes advertisement segments and focuses solely on the content discussed between [02:23] and [15:00] in the provided transcript.