Suze Orman and Dave Ramsey Both Recommend the Same Account for Your Retirement Savings. But Are They Right?

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Before you pick which retirement investment account to use, you should read this. 

Saving money for retirement is important, and picking the right tax-advantaged account can help make the process of investing for your future easier.

If you have a workplace 401(k) with a company match, investing in it is a no-brainer. You should put enough money into your 401(k) to earn your employer match, since that’s free money. But once you’ve done that, you have a choice of many different accounts, including a traditional IRA and a Roth IRA you can open with a brokerage firm of your choosing.

Both Suze Orman and Dave Ramsey share the same opinion on which of these accounts you should use. But, while their preferred option makes sense for many people, it may not be the right choice for every future retiree.

This is the account Ramsey and Orman recommend

The account both Orman and Ramsey have advised putting your money into is called a Roth IRA.

A Roth IRA is different from a traditional 401(k) or traditional IRA in one important way: You get your tax savings at a different time. With a Roth account, you make tax-free withdrawals as a senior. But contributions you make are made with after-tax dollars, so there’s no upfront savings on your taxes for the amount you invest.

Orman made clear that she believes a Roth IRA is the right account for most people to invest in. “I love, love, love Roth IRAs,” Orman wrote. “I think the prospect of no taxes in retirement on your retirement withdrawals is well worth considering.”

Ramsey has also praised Roth IRAs, citing the fact your account can grow tax-free. He also pointed out that you have more flexibility with regard to when you make withdrawals because you don’t have to take required minimum distributions (RMDs) with a Roth IRA. RMDs are required with most traditional tax-advantaged accounts, and they mandate you take money out on a government-approved schedule once you reach a certain age.

Who should use a Roth IRA?

With both Orman and Ramsey promoting a Roth IRA, it may seem like this is the obvious best choice for you to put retirement funds into. After all, tax-free withdrawals and more flexibility as a senior both sound very attractive.

And, indeed, for many people, a Roth IRA is a great option. Not only can this account allow you to avoid paying taxes on the distributions you take from it as a senior, but it can also help you keep your Social Security benefits tax-free. That’s because Social Security benefits are taxed only if your income exceeds a set amount, and distributions from Roth IRAs don’t count as income when this calculation is made.

But, not everyone ends up better off with a Roth. If you expect your tax rate to go down substantially as a retiree, you are better off with a traditional account. You can save on taxes during a time when you’d otherwise pay a higher rate, rather than deferring your savings to a time when you owe less.

Be sure to think about what your future tax situation will be like before deciding whether listening to Ramsey and Orman is right for you.

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