Suze Orman: This Is the Biggest Mistake You Can Make When Saving For Retirement
Written by
Jaime Catmull
Edited by
Levi Leidy
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When it comes to saving for retirement, you have a few options for where to keep your money. If you’re deciding between a traditional versus a Roth account, Suze Orman said there’s only one good choice.
Here’s why the “Women & Money” podcast host and one of GOBankingRates’ Money’s Most Influential Women believes that everyone should opt for a Roth account.
Why Orman Wants Everyone To Use a Roth Account
Orman said that no matter what age you are or how much money you are making, saving for retirement in a Roth account is a wise choice. While traditional 401(k) plans and IRAs allow you to contribute tax-deferred dollars, Roth contributions are made with after-tax dollars, which Orman believes will pay off in the long run.
“The top tip for building wealth is to set a little bit of money aside every single month, especially when you are younger to take advantage of compounding, [toward] a Roth retirement account,” she told GOBankingRates. “[Choose] a Roth retirement account over a traditional retirement account — no matter what tax bracket you happen to be in — if you really want to not just build wealth, but keep the wealth that you build.”
Orman explains that not doing so is a costly misstep.
“One of the biggest mistakes you will make is if you opt for a retirement account that gives you a tax write-off versus a retirement account, such as a Roth, that allows you to invest with after-tax dollars,” she said. “Never put money in a pre-tax retirement account. Again, no matter how wealthy you are, the tax bracket you’re in, no matter anything — you’re not going to do it.”
In a blog post, Orman explained why a Roth account is always the better choice.
“Because you pay the tax upfront, you will never owe any tax on that money in the future,” she wrote. “In retirement, you can withdraw money and owe no tax.”
If you contribute money to a traditional account, you will owe taxes in retirement, and each dollar you withdraw will be taxed at your ordinary income rate.
“Unless you are sure your income tax rate will indeed be much lower in retirement, I think saving in a Roth is smart,” she wrote. “And it’s important to consider that […] there’s no way to know what tax rates will be in five years, let alone 10 or 20. It’s not out of the question that rates could move higher in the future.”
Gabrielle Olya contributed to the reporting for this article.
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