16. Roth IRA or 401K – Which Retirement Account is Right for Me?

May 5, 2022

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The following article may contain affiliate links or sponsored content. This doesn’t cost you anything, and shopping or using our affiliate partners is a way to support our mission. I will never work with a brand or showcase a product that I don’t personally use or believe in.

What are my options for retirement?

Ready for some harsh truth?

You will not be able to afford to retire with out investing.

Yeah, it sounds harsh, because it is harsh. We do not have an effective system that guarantees our financial security in our retirement years –– so we have to build our own. And the best way to do that is through investing.

In today’s episode, host Tori Dunlap takes you through the different kinds of retirement accounts and how to choose which ones are right for you. Before you dive in, make sure to listen to our previous episodes on investing:

5: Where Do I Start? AKA the Financial Game Plan

9: Beginner’s Guide to Investing

If you’re wanting to take control over your investments, we’ve built an incredible, one-of-a-kind investing community called Treasury. Since we launched early this year, our Treasury members have invested over $13 million in their portfolios. Learn more about Treasury and join  the community by taking our Investing 101 workshop.

P.S. if you’re loving the show, please make sure to rate and review, and subscribe on your preferred podcasting platform! You can also take a screenshot when you’re listening at tag us at @financialfeministpodcast on Instagram!

P.P.S Do you have a 401K from an old job you need to roll over? Check out Capitalize –– they help you roll your old 401K into a Roth IRA!


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Hello, Financial Feminists. Welcome back to the show. In case you’re wondering what I’m currently up to, a little fun fact about me is I have been living in New York for a little over two weeks now. It was 10 year old me’s dream to live in New York City. I went to New York when I was 10 and I loved the city very much and loved the energy and the pulse of the city. If you’ve ever lived in New York/visited New York you know this feeling very well, and then I got older and I realized how expensive New York City was, and I realized it was a little too big for me, and I didn’t want to get swallowed up in the city, and so I visited many times since then and thought like, “Okay, how do I honor 10 year old me’s dream of living in New York while also realizing I don’t want to do this full time?”

So, I have been in an Airbnb in Brooklyn for the last two and a half weeks, and I’ll be here for a total of six weeks, which I feel like is a beautiful amount of time, and weirdly what’s happened is I’m like, “Okay, I couldn’t live in Manhattan,” but I really like Brooklyn, and I really like the neighborhood I’m in and it’s making me really reevaluate all my choices, but as you probably know, I’m a theater nerd and a theater major, and the big thing that I do when I come to New York, especially when I was only here for like five days or a week, is I would just see as many shows as I could on Broadway, and if you have ever wanted to see more shows on Broadway or coming to New York to visit, or if you live in New York, a lot of my friends weirdly have lived in New York for years, but don’t go to shows.

And one of the common things I hear is like, “Oh my God, it’s so expensive,” and it is, it’s very expensive. However, I can’t tell you the last time that I saw a show and spent more than $50 on my ticket. So I’m going to give you… This is not related to retirement accounts at all, but I’m going to give you the hack to end all hacks, and if you are a theater person who lives in New York, you probably know this hack, and you’re like, “Well, everybody knows this.” They actually don’t, so just bear with me. So, what happens is very rarely do shows sell out, very rarely do Broadway shows completely sell all of their tickets. Maybe the popular ones do, like Hamilton, especially pre-pandemic. You couldn’t get a ticket to Hamilton very easily, but a lot of shows that are just as great and just as amazing are not going to completely sell out, and they know this.

So, what people tend to do, especially I see a lot of older people do this because they want to pick their seat and they want to know exactly what show they’re going to, is they’ll go up to the box office and they’ll spend $150, 200, $400 on a seat in like row N and you can do this, but that’s very expensive. The hack that a lot of people know is you’ll go to what’s called the TKTS booth in Times Square, and you’ll buy tickets typically to a long running musical or a family musical. So, you’ll buy a ticket to Phantom of the Opera and the sticker price on that ticket will be $200, but you’ll spend 80 and you’re like, “Oh my gosh, that’s a great deal.”

It’s a better deal than the box office. However, I have an even better deal for you. As long as you’re not super picky on what show you see, and if you do the slightest bit of research, there is what’s called rush tickets for most shows. Rush tickets are day of tickets where, again, they know, “Okay, we’re not going to sell out the show, so we’re going to offer discounted tickets to people who show up on the day of.” So, I literally saw two days ago American Buffalo with Sam Rockwell and Darren Criss. I had incredible seats that were like 150, $200 seats, and I got them for 45 bucks. And, I’ve done this with so many shows. I can’t even… Like Kinky Boots, Oh, Hello with John Mulaney and Nick Kroll, oh, hello. I saw a Company last night with Patti LuPone for $50, which is still one of the best shows I’ve ever seen.

And, you can also figure out what shows have rush. They also have what’s called lottery tickets. It’s exactly how it sounds, you enter like a digital lottery and if your name gets chosen, yo
u get to go, and sometimes these seats, again, are like front row seats that are very expensive, but that you can win. You can literally just go to playbill.com, we’ll link it in the show notes, and see the rush policies, the lottery policies for every single show on Broadway. So, that’s what I do, guys, when I come to New York. Literally, I’ve been here two and a half weeks, I’ve seen three shows. Last time I was in New York, I was there for five days. I think I saw four shows, maybe five shows. This is all I do when I come to New York, and it’s not only, of course, so entertaining, great way to support Broadway, especially as it comes back from the pandemic, but also a way to do it on a budget.

So again, you can check rush policies, lottery policies, and it’s really, really easy to get tickets at a very discounted price, especially if you’re not picky, but again, there’s rush seats for things like the Lion King. There’s very famous lotteries for shows like Hamilton. There are so many ways that you can access both shows you might not have heard of that are amazing, and also shows you’ve heard of that are amazing for a discounted rate, so that’s what I’ve been up to the last two and a half weeks in New York. I’m so excited to tackle this week’s topic. We’re talking about retirement accounts. I know that sounds boring. I promise you, I will not let it be boring, but first up we’ve got a voicemail to share with you from one of our listeners.

I just want to thank Her First $100K, and Tori, for helping me set up my financial foundation. This past year I was able to set up my HYSA, my Roth IRA, my 403(b). This podcast has really actually changed my life and I’ve sent it to a few friends and they’ve all become Tori fans as well, and I just want to thank you from the bottom of my heart to giving me the tools to success, and using money as a tool to help build my future.

That one made me so happy. I love getting voicemails like this from our community. There is something so incredible about hearing wins in your voice, and we’d love to keep sharing these to inspire others. So, if you want to leave us a voicemail, head over to SpeakPipe, P-I-P-E.com/financialfeminist. We’ll also link it in the show notes and leave us a message with either a question you’d like us to answer on an episode, or a win you’d like to share with our community, and we just can’t wait to hear from you, and what a great voice message that was for today because it perfectly leads into our topic, retirement accounts. Today, I’m going to break down retirement accounts, the TLDR on the most popular ones, ones I recommend and use myself, and then a few options you probably have never heard of. I’m also recommending that you listen back to episodes five and nine from season one as a precursor to this conversation.

So in episode five, I go through the financial game plan, which gives you a sort of order of operations on exactly when you should start investing for retirement. So, if you haven’t listened to that one, please, please do. That episode especially is one that you will keep coming back to for literally the rest of your life, that financial game plan works regardless of your age, regardless of where you’re at in your financial journey. And in episode nine, I explain more in depth what investing is, the kind of rules of two’s around investing, and how to actually get started. So, these episodes will give you a very good primer on everything we’re diving into today. When we talk about retirement, I think the most common question I get is, “Why do I need to save for retirement?” Or specifically really, “Why do I need to invest for retirement?”

I work with a lot of women in their 20s and 30s, so regardless of your age, you might be asking this, but specifically if you’re a millennial or gen Z, you might be going, why do I need to say for retirement? There’s many answers to this question. The first is that retirement is the biggest expense of your life. It’s the biggest expense of your life. It is more costly than going to college, than buying a home, than sending your children to college. It is the most costly expense of your life, and that sounds harsh, but it’s an actual fact. When we consider the idea that we’re probably going to work from maybe around ages like 22 to 65, which is traditional retirement age, that’s about 40 years, that’s a little over 40 years. You are working typically eight hours a day, five days a week, for 40-ish years in order to sustain yourself for you to not work for at least another 30.

We hope we get another 30 years. So, you are working 40 hours a week for 40 years to hopefully never work again. That’s going to be really expensive. In addition, these years are also typically the most expensive of your life. If you think about people in your life who are over the age of 65, they’re probably spending a lot of money on things like healthcare costs, and if you’re listening and are based in the United States of America, you know our healthcare system is pretty fucked up and you know that it’s pretty expensive to be sick. And unfortunately, of course, we know as you age, you’re more likely to have health issues. So, not only of course are you working for that period of time in order to hopefully give yourself a kick ass retirement, you’re also trying to give yourself a kick ass retirement knowing that it’s going to be even more expensive than your current expenses right now.

So, that’s one reason we need to save for retirement. The second is that even if you’re young, time is more important than the amount of money. We talked about this briefly in episode nine, but it bears repeating yet again. Time is more important than the amount of money. One of the misconceptions I hear about investing is that you need a bunch of money to get started, and oh, I’ll just wait until I’m older and wait until I have more money to start investing, but the truth is that you can start with a smaller amount of money the sooner you start. You don’t need thousands of dollars, you need like $100. Even if you can only do $100 once, that is better than waiting because of this lovely thing called compound interest. Compound interest is simply when your interest earns interest.

It’s why debt sucks so hard, but why investing is so amazing because compound interest does a lot of the legwork for you because if you’re thinking, “Wow, retirement sounds really expensive,” you’re fucking right, but in addition, compound interest is there to help you. It’s there to assist you and compound interest only if you’re investing. So, why do you need to save for retirement? Because it’s expensive. Why do you need to save for retirement now? Because it’s the best time. I always joke that the day you start investing is the best day because you didn’t wait to start tomorrow. You don’t get time back. One of the other concerns I hear of, why would I invest for retirement if the world is going to burn? Why would I spend all this time and energy putting away money that I’m not even going to get to use because the apocalypse is coming because global warming sucks and there’s not going to be a world for us to live in, and also World War III and also lack of clean water?

All of these fears are completely valid. I have the same fears, but I would rather bank and hope that I see retirement with a lot of money than get to retirement age and have nothing because I thought that the world might not exist, and if you do save all this money, if you do invest all this money, and the world is ceasing to exist, you’re going to have way more problems then your status of your retirement accounts. If zombies are walking outside of your d
oor, that is your primary concern, not, “God, I wish I hadn’t saved all that money.” You’re worried about protecting your brain from getting eaten, right? So when you’re thinking, why would I do all this heavy lifting? Why would I do all this work? I would rather you be protected than not be protected.

I would you be safe than sorry. Also, I’ve been wondering, because I don’t know enough about science fiction, why zombies eat brains, and if you know, please leave us a review, tweet at us. Tell us why they eat brains specifically because I don’t know, what part about the brain is the most appetizing part to a zombie? I don’t understand, I don’t get it. If you know, tell me. Also, I’ll spend a couple minutes googling after this episode. Let’s break down some retirement accounts. All of the accounts I’m mentioning today are what’s called tax advantaged accounts, meaning that the government is incentivizing you to save, so it’s really invest, for retirement by offering new tax breaks. They are dangling the carrot. They’re saying, “If you invest for your own retirement, typically you’ll then be cheaper to us as a government, and so we’re going to give you tax breaks for doing so.”

If you just generally invest, you’re probably investing through what’s called a brokerage account. Now, brokerage accounts have more flexibility, but they are not offering you those tax breaks. Retirement accounts are specifically used most likely for retirement funds. So, if you’re trying to take a vacation next year, your money should not go in a retirement account for that vacation, so this is for retirement, but you’re getting those sweet, sweet tax breaks. And, the government gives us very little in terms of benefits, so please take advantage of these to their fullest extent. What are the most common retirement accounts? First, 401(k)s. You’ve probably heard of a 401(k) or a 403(b). A 403(b) is like the public sector version of a 401(k). 401(k)s are for private companies, 403(b)s are for typically if you’re a government worker or a teacher.

So, these are workplace retirement programs, meaning that your work is offering these retirement accounts to you as a benefit. So, when you think about a 401(k) or a 403(b) your workplace, again, is incentivizing you to save for retirement by giving you this as a benefit. So in addition to your salary, in addition maybe to healthcare, they’re giving you a 401(k) or a 403(b) as an option for you to start investing for retirement. The maximum you can contribute to a 401(k) is $20,500 as of 2022. However, you don’t need to contribute the maximum in order to contribute to a 401(k), that’s a common misconception. You’re like, “I either have to go full 20,500 or I don’t contribute at all.” You can contribute anything up to the maximum, and anything you do contribute up to the maximum is amazing and great. So, if you can only and contribute $500, great. If you can normally contribute 10,000, great.

Now, a really cool thing that often happens with a 401(k) or a 403(b) is you’ll have what’s called an employer match. Employer matches are free fucking money. So, if you’re at your workplace and they offer, let’s say a 401(k), and they say, “We offer you a 3% match,” what that means is that if you contribute 3% of your salary, they will match that 3%. So, if you contribute 3% of your salary, they will double it for you automatically. They have doubled your money and you’ve only contributed half of the effort. Please take advantage of this. If all you can contribute to your 401(k) is just up to the match, that is massive. Do everything you can to contribute at least up to the match, because again, it’s free money. There’s no other place in the world that’s going to guarantee you doubling your money.

So, that is a 401(k). 401(k), again, a workplace sponsored retirement program, it’s offered through your work. It is, again, tax advantaged as all of the accounts are that we’ll discuss today, and if you get an employer match, please take advantage of it. Let’s talk about an IRA. IRA stands for individual retirement account. An IRA is not tied to your employer. It’s an individual account. You open it as an individual, and although there are some income restrictions, pretty much let’s say most people can contribute to an IRA. Again, with an IRA, you are responsible for opening it yourself, but a couple cool things with the IRA. One, as opposed to a maximum of $20,500, your maximum is $6,000 a year. However, this is where things get fun. Stay with me, a little complicated, but I’ll try to explain this in the easiest way possible.

Your $6,000 maximum contribution, you actually have 15 months to hit that maximum. So if it is January 2022, you have from January of 2022 to December of 2022 to hit that 6k, plus January of 2023 to tax day of 2023 to hit that 6k. So, if you’ve contribute like $4,000 in that calendar year, you have a couple extra months to play catch up. Again, you can contribute anything up to that 6k, you just have more time to contribute. So again, to recap, IRA, individual account, it’s not tied to your employer, and in addition, you have 15 months to contribute that maximum of $6,000. Now, 401(k)s and IRAs come in two different flavors, traditional and Roth. The difference is in how they are taxed. Traditional means that you are paying the tax when you withdraw the money, AKA when you retire. So rather than paying tax now, you are delaying that and paying the tax when you withdraw the money.

As you might imagine, a Roth IRA or a Roth 401(k) means you pay the tax now. You’re not paying the tax later, you’re paying the tax now because Uncle Sam’s got to get his tax money in some way. Now ultimately you need to do your research, you need to figure out what’s right for you. I personally like the Roth IRA for two basic reasons. One, it’s like giving 65 year old me a little gift. It’s like, “Hey, here’s this lump sum of money that younger you already pay taxes on, go crazy. Go take this money to Capri and drink Chardonnay with lunch and go on dates with your much younger Pilates instructor named Luca, my real life retirement plan. Second reason I like the Roth IRA, I have no idea what the fuck taxes are going to be when I retire.

I have no idea, none of us know, and although taxes could go down, they probably won’t. They will probably go up, and I’d rather at least pay the tax now because I know what it is now than leave it up to chance later. So again, two flavors, traditional 401(k), or traditional IRA, or Roth 401(k) or Roth IRA. Now you can have a 401(k) and an IRA in either flavor in both flavors, but you cannot contribute more than the maximum. So, let’s say you opened a traditional IRA and a Roth IRA, you can’t contribute 6,000 to one and 6,000 to another. The total has to be 6,000. My self-employed babies, I did not forget you. Let’s talk about two basic options that you have. Also, if you do run your own business, please hire an accountant. A good accountant will talk you through what would be personally your best option, and again, accountants are always great.

I’ve never done my own taxes, guys, accountants, 10 out of 10. First option, solo 401(k). Exactly what it sounds like, it’s a 401(k) offered through your employer, except you’re your own employer, same maximum contribution limit, $20,500, and again, you’re your own sponsor because you’re your own employer. So, if you want a solo 401(k), you are going to open it up yourself because you run your own company. Now, you cannot have a solo 401(k) in this next option, what’s called a SEP IRA. You have to pick one or the other. A SEP IRA is just like a traditional IRA in the way that it’s taxed. There is no Roth option. However, that maximum contribution limit is sweet, $56,000 a
year, or up to 25% of your income, whichever comes first. Again, $56,000 a year, or up to 25% of your income, whichever comes first. Now, if you are a side hustler, if you have a nine-to-five and you run a side hustle on the side, you can open up a SEP IRA as well.

You can’t open a solo 401(k) unless you’re a old time self-employed person, but you can have a SEP IRA. This is part of the reason I hit my 100k as quickly as I did because I had a 401(k) through my work, I had an IRA, and then I also had a SEP IRA through my business. I was like crazy maxing out my retirement accounts. I was getting mad tax breaks, not really, these are very moderate tax breaks. These are not Jeff Bezos’ tax breaks, but I was doing the best that I could to, again, not only contribute to my own retirement and invest for my own retirement, allow compound interests to work for me, but was also getting every tax break that was offered to me with these retirement accounts. Again, you can either have a solo 401(k) or a SEP IRA if you’re a full-time self employed person.

And if you’re a side hustler, you can only have that SEP IRA, but you can kind of mix and match. Again, you could have, if you’re a side hustler, a 401(k) through your nine-to-five, an IRA in either flavor, traditional and/or Roth and a SEP IRA. One caveat as well is that in addition to your self-employed options like a 401(k) or a SEP IRA, you do have to pick one or the other, again, with those two, but you can also have traditional and/or Roth IRAs. That’s not just limited to a nine-to-five employee, that’s not just limited to people who have W-2 jobs, but is also available if you are a self-employed person full-time. To wrap up the episode, something that’s so, so, so crucial and so important that we talked about in episode nine, a reminder that you have not actually invested your money until you have not only deposited money into an investing account, but have gone and purchased your investments.

A Roth IRA, a 401(k), a SEP IRA, a solo 401(k), any of these accounts, these are not investments. These are the accounts that hold your investments. I want to repeat that. When you say, “Oh, I’m investing in a Roth IRA.” Technically it is, but you’re investing within a Roth IRA. You are not putting your money into an investment called Roth IRA. The Roth IRA is the account that holds the investments. So when you go to open, let’s say, an IRA and you deposit money into one of these accounts, again, you have not actually invested your money until you have done step two, until you have actually chosen your investments. Now choosing your investments, everybody would like to tell you is incredibly complicated, but as we talked about in episode nine, you have two basic options, stocks and bonds. Those are your two basic options, and through Treasury, which is our investing education app, we talk about things like ETFs, mutual funds, index funds, my favorite things to invest in, and personal finance experts’ favorite thing to invest in.

So, we talk about not only, again, how to make sure that you’re setting up your accounts in the correct way, but we’re telling you how to actually make those first investments. We’re teaching you how to research investments and then how to actually make your first investment in terms of purchasing. So, Treasury is available to anybody. We’re especially geared towards women, we’re a non-shaming, non-judgmental investing education platform, and the reason we built Treasury was because, unfortunately, the other investing platforms are typically either super jargony and confusing, or they’re geared towards Wall Street finance bros. And if you know me, that’s not my shit. So, Treasury is linked in the show notes. You can also go to treasury.app. Your experience starts with an hour live workshop with me.

We guide you through, again, all of the things I just mentioned, how to think about investing, how to set up your investing account, how to actually make your first investment. People literally make investments live on the workshop, like this most recent workshop we did, which it’s going to be fun, hopefully to listen just in a couple months, and that this number has gone crazy, but literally live on the workshop are workshop attendees invested over $100,000 and more than 80% of those investors were first time investors, so it makes me so happy. We’re literally changing the statistics and making something that is unfortunately very fearful and scary and intimidating, something that’s super accessible. So treasury.app, or you can visit the link in our show notes, and again, we’re teaching you, okay, if you have a Roth IRA, amazing, here’s what you actually invest in, and here’s how to stay the course to be a long-term, consistent investor.

We also have so many more episodes about investing coming. It’s something that you guys have requested and asked for. So, we’re going to continue talking about investing, we’re going to continue talking about various kinds of investments that you have questions about, and again, I remind you, I’ve said this before, I’ll say it again, one of the narratives that gets perpetuated is that investing is complicated. We are told investing is intimidating and scary and risky, so you shouldn’t do it, and that is another patriarchal narrative meant to keep you underpaid, overworked, and frankly financially unstable. So, one of the most powerful forms of protests you have is not only getting your financial shit together, but actually starting investing. Recent stats say that only 26% of women who are able to invest actually do, and through Financial Feminist, through our podcast platform and also through Treasury, we are actively working to change that statistic.

And if you have more questions about investing, please leave us a voicemail. You can go, again, to the link in our show notes to do that. As always, we so appreciate you being here. Feel free to tag us in your biggest takeaways, Financial Feminist Podcast on Instagram, leave us a review, it always helps us, it helps more people discover the show. And if you want more information about retirement accounts, about investing, about Treasury, about how all of this works, my team and I spend so many hours on the show notes. So, please go ahead and check those out. As always, thanks for being here, thank you for being financial feminists, and I will catch you next week.

Thank you for listening to Financial Feminist, a Her First $100K podcast. Financial Feminist is hosted by me, Tori Dunlap, produced by Kristen Fields, marketing and administration by Karina Patel, Olivia Coning, Charise Wade, Alena Helzer, Paulina Isaac, Sophia Cohen, Valerie Oresko, Jack Coning and Ana Alexandra, researched by Ariel Johnson, audio engineering by Austin Fields, promotional graphics by Mary Stratton, photography by Sarah Wolf and theme music by Jonah Cohen Sound. A huge thanks to the Her First $100K team and community for supporting the show. For more information about Financial Feminist, Her First $100K, our guests, and episode show notes, visit financialfeministpodcast.com.

Tori Dunlap

Tori Dunlap is an internationally-recognized money and career expert. After saving $100,000 at age 25, Tori quit her corporate job in marketing and founded Her First $100K to fight financial inequality by giving women actionable resources to better their money. She has helped over one million women negotiate salary, pay off debt, build savings, and invest.

Tori’s work has been featured on Good Morning America, the New York Times, BBC, TIME, PEOPLE, CNN, New York Magazine, Forbes, CNBC, BuzzFeed, and more.

With a dedicated following of almost 250,000 on Instagram and more than 1.6 million on TikTok —and multiple instances of her story going viral—Tori’s unique take on financial advice has made her the go-to voice for ambitious millennial women. CNBC called Tori “the voice of financial confidence for women.”

An honors graduate of the University of Portland, Tori currently lives in Seattle, where she enjoys eating fried chicken, going to barre classes, and attempting to naturally work John Mulaney bits into conversation.

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