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Old 01-13-2023, 05:47 PM   #1105 (permalink)
JSH
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Quote:
Originally Posted by redpoint5 View Post
I don't fully practice what I preach, but putting money into "savings" isn't how you get rich; it's how the banks get rich.

The checking account should have a few grand in it; enough to cover the monthly credit card bill, which you're purchasing everything on to get the 2% cash back, plus a grand or so extra as an emergency/buffer.

4% interest on $5k is $200 a year, or about 50 cents a day. Not life altering.

Invest the rest in index funds which over time will outperform any savings account, except...

Here's the order of operations ….
I don’t disagree with any of that but I do think people get way to wrapped up in traditional vs roth IRAs. There is no difference in taxes paid between the two if the tax rate stays the same. So really you are betting on whether your tax rate is lower today vs when you take the money out decades from now. It makes a lot of sense for someone early in their career to fund a roth since their tax rate is likely low. In makes little sense for someone at the peak of their career but with little saved to fund a roth. The VAST majority of people aren’t going have enough invested that their federal income taxes in retirement are greater than when they are working. People that owe little to no taxes in retirement made a mistake if they invested in a Roth. There is no one size fits all answer to the Roth vs Traditional question.

The other benefit to a Roth is that you can take the contributions out penalty free before the age of 59 ½. That is why FIRE enthusiasts are so sure that Roth IRAs are the way to go. And saving a 10% early withdrawal penalty is a big deal if you are planning to use the money before 59 ½.
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