Here Are 4 Reasons Suze Orman Says You Should Have More Than One Retirement Account

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  • A Roth 401(k) offers the same tax-free distributions as a Roth IRA with even more benefits.
  • A Roth 401(k) does not have an income limit like a Roth IRA.
  • An IRA is capped at $6,500 whereas the contribution limit for a Roth 401(k) is $22,500 for 2023.

Suze Orman says you should take advantage of this retirement account.

Financial guru Suze Orman says you should have more than one retirement account to ensure a secure retirement. What does she mean by that? Orman, a financial advisor for over 40 years and host of the podcast Women & Money, believes that if your employer offers a Roth 401(k) option, then you should take advantage of it. Here's why.

Benefits of Roth accounts

The greatest benefits of a Roth IRA is its tax-free growth and tax-free distribution. This means the money in a Roth account grows tax-free, and unlike a traditional IRA, you can withdraw money from the account in retirement (after age 59½) without any taxes.

Let's say you are in the 32% tax bracket and have $1 million in an IRA. If it's in a traditional IRA and you withdrew all of the money at once with no itemized deductions, you would pay close to $300,000 in taxes! That same pot of money in a Roth IRA would be tax-free, saving you $300,000. These generous tax advantages make Roth IRAs one of the most attractive retirement accounts available today.

There are some rules you have to be aware of when contributing to a Roth IRA. You can't contribute if you make more than $153,000 ($228,000 if married), and you can only contribute a max of $6,500 a year ($7,500 if you are over 50). There are penalties if distributions are not qualified, and you don't get the tax deduction upfront. However, a Roth 401(k) offers several advantages a Roth IRA doesn't. Here are four reasons Orman says you should switch from a traditional 401(k) to a Roth 401(k).

1. No income limit

If your income disqualifies you from contributing to a Roth IRA, you can still invest in a Roth 401(k). Anyone can contribute to a Roth 401(k) regardless of income level.

2. Higher contribution limits

The amount individuals can contribute to a Roth 401(k) plan is about 4 times higher than a Roth IRA. An IRA is capped at $6,500, whereas the contribution limit for a Roth 401(k) is $22,500 for 2023, up from $20,500 for 2022.

3. Tax-free distributions

As mentioned before, all contributions made into a Roth 401(k) are done on an after-tax basis. This means that when it comes time for you to retire, any withdrawals from your account will not be subject to income taxes. This can help significantly lower your taxes in retirement and potentially save you hundreds of thousands of dollars.

4. More flexibility

Unlike other types of accounts like traditional IRAs, Roth 401(k)s do not require you to take out minimum distributions (RMDs) each year once you reach age 70½. This can be especially helpful if you want to delay taking Social Security benefits until later in life or if you want to pass down more money to your heirs.

Suze Orman has some great reasons why everyone should consider investing in a Roth 401(k). From tax-free growth to no income limits and higher contribution amounts, there are countless advantages associated with this type of investment vehicle. So if you're looking for ways to save more money for retirement without having to pay more taxes, then investing in a Roth 401(k) might just be the perfect solution.

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