Suze Orman says you should put “every penny” in this account (hint: it’s not savings)
There are many different options for where to put the money you are saving for the future. But if you ask financial guru Suze Orman, there is one account that is way better than most of the other options. In fact, Orman likes this type of account so much that she said you should “put every penny into it.”
So which account does Orman like?
This is Orman’s preferred type of retirement account
Suze Orman’s favorite savings account is a Roth retirement account.
Specifically, Orman likes Roth 401 (k) s. These are workplace accounts that some employers provide. For those whose employers don’t offer them, Orman favors all types of Roth retirement accounts, which include a Roth IRA.
Roth IRA and Roth 401 (k) accounts are different from traditional 401 (k) or IRA accounts in some important respects:
- Contributions are made to Roth accounts with after-tax dollars. You do not benefit from any initial savings during the year you invest in them. With traditional 401 (k) or IRA accounts, you realize tax savings in the year you invest because your contributions are deductible from your taxable income.
- Withdrawals from Roth accounts are tax free as long as you are 59 1/2 years old and meet other requirements such as not withdrawing money within five years of first opening your Roth account. With traditional accounts, you pay taxes at your regular tax rate when you make withdrawals.
Orman believes deferring your tax savings will make you better off. âPlease don’t go for the tax deduction today, so later in life you will have to pay taxes in a traditional retirement account. Go for a Roth,â Orman said.
There are also other advantages that she considers important.
For example, while Roth 401 (k) required minimum distributions (which require withdrawals after age 72), Roth IRAs do not have this requirement to start withdrawing money. You have the flexibility to withdraw your funds whenever you want rather than when the government asks you to. With a Roth IRA, you also have the option of withdrawing your contributions before age 59 1/2 without being subject to a tax penalty – unlike traditional accounts (although you still owe a penalty on earnings withdrawn).
Orman likes the added flexibility that comes with this type of account, which is a big reason she’s pushing to invest your retirement money in a Roth. She also likes that if you leave the retirement savings to your kids as an inheritance, your kids won’t lose a lot of money to the IRS like they would if you left them money in a traditional account. .
Now Orman recognizes that you have to contribute a traditional 401 (k) if necessary to win an employer match. Some people who don’t have a Roth 401 (k) at work should do so to avoid missing out on the free money their business provides for retirement savings. But, if that’s your situation, she suggests that you contribute just enough to get your employer and then spend the rest of your money on your Roth IRA.
The good news is that you can open a Roth IRA with any brokerage firm, whether or not your employer offers access to a Roth 401 (k). So, if you want to open the account Suze Orman loves, consider exploring the best brokers for Roth IRA today.
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