One of the most renowned personal finance experts, Dave Ramsey, regularly gives advice to his listeners about retirement savings. What he emphasizes is that what kind of retirement plan People can have a significant impact on their lives during their golden years. This is because some retirement accounts allow people to withdraw tax-free contributions in retirement, while others do not.
The Roth IRA is a type of retirement account that Ramsey says is a strong wealth-building vehicle because employees contribute to it using after-tax income. Then, it grows tax-free, and withdrawals become tax-free after age 59½. Here’s more information about this type of retirement account, including the reasons why Ramsey recommends it.
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401(k)s and Traditional IRAs(k)s are not the same as Roth IRAs
As mentioned, employees make Roth IRA contributions using after-tax income, which means they can withdraw them tax-free in retirement, as long as they meet certain qualifications. Traditional IRAs and 401(k)s work differently because employees contribute to them using pre-tax income. This means that when you withdraw from those accounts in retirement, you will have to pay taxes on your withdrawals. Essentially, employees choose between saving on taxes now or saving on taxes in retirement.
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Other reasons why Ramsey favors Roth accounts
Ramsey prefers the tax savings Roth accounts offer because many people don’t know what their tax bracket will be in retirement. The advantage of the Roth is that even if you’re in the highest tax bracket in retirement, you can take your money out tax-free. With a 401(k) or traditional IRA, you must pay taxes at your normal rate on any withdrawals. Withdrawals of larger amounts may also move you into the next tax bracket, causing you to pay more taxes.
The biggest difference with a Roth IRA: no RMDs
The most important difference between a Roth IRA and other accounts is that there are no required minimum distributions (RMDs) in the Roth IRA. This means that if you have other ways to fund your retirement, you can leave the money in your Roth IRA for as long as you want. Your money can grow without the pressure of legally required withdrawals. With traditional IRAs and 401(k)s, investors are required to begin taking distributions at age 73.
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Current 2026 Roth IRA Contribution Limits
The downside to traditional and Roth IRAs is that the annual contribution limit is $7,500 (or $8,600 for those 50 and older), while the 401(k) limit is $24,500. Additionally, to be eligible to contribute to a Roth IRA, you must earn less than $153,000 as a single filer or $242,000 as a joint filer. People who earn above that amount can still contribute through something called a backdoor Roth IRA, where they convert a traditional IRA to a Roth IRA. Keep in mind that you’ll have to pay taxes on the amount and file the appropriate IRS forms.
Ramsey still supports getting a 401(k) employer match
Even though Ramsey is a major proponent of Roth IRAs and believes these are the best retirement accounts for building wealth, he still supports people matching them through their employer. The employer match is essentially free money that your employer gives you for contributing a specific amount.
Each employer sets its own policies regarding matches, so it’s important to take the time to understand what you have to contribute to get the full match. It’s also a good idea to understand your employer’s vesting program. When you are fully vested in your retirement plan, which can happen immediately or over a few years depending on your employer, this is the point where you have full ownership of the matching funds contributed by your employer.
This is the savings order that Ramsey recommends
If you have an employer match, Ramsey suggests a specific savings mandate for your retirement. First, he says, invest enough in your 401(k) to get the first match. Once you find a match, he says, max out your Roth IRA. If you have money left to invest after that, he says, go back and add more to your 401(k).
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How to get answers to your financial questions
Dave Ramsey hosts his own radio show daily, which is also a podcast. You can call it anytime to get answers to your financial questions. If you need personal advice, make an appointment with a financial planner. A financial planner can review your current retirement balance, take time to understand your goals and make recommendations specific to you.
ground level
it takes time to finally reach your retirement goalsAnd it may help to understand which retirement accounts have the greatest tax advantages. Of course, what’s best for one person may not be best for another, so if you have questions about which strategy is best for you, be sure to run your own numbers and talk to a tax or financial professional.
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