Roth IRAs | Finance & Capital Markets | Khan Academy

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Introduction to Roth IRA’s. Created by Sal Khan.

Watch the next lesson:
https://www.khanacademy.org/economics-finance-domain/core-finance/investment-vehicles-tutorial/ira-401ks/v/401-k-s?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets

Missed the previous lesson? Watch here: https://www.khanacademy.org/economics-finance-domain/core-finance/investment-vehicles-tutorial/ira-401ks/v/traditional-iras?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets

Finance and capital markets on Khan Academy: The government apparently wants us to save for retirement (not always obvious because it also wants us to spend as much as possible to pump the economy going into the next election cycle). To encourage this, it has created some ways to save that avoid or defer taxes: IRAs and 401ks.

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39 Comments

  1. Usually, one's net result with the logic in this video will be of similar earnings between a traditional and a Roth I.R.A. (despite the math errors herein). What is not often enough mentioned is, the Roth will much outweigh the traditional if the initial principal between the two accounts is the same (rather than the Roth's being relatively reduced by taxes).

  2. Wish I could find a video with someone explaining this without putting me to sleep.

  3. Wow, math mistake screws everything up, also logical mistake screws it even more.
    Let's say we doubled the money, 10k vs 6.8k.
    You need to get 3400, not to withdraw 3400.
    So in traditional you have to withdraw
    5862.07 this yields you 3400 after .32+.10
    Leaving 4137.93 in account to earn interest, while in Roth you get 3400, leaving 3400 earning interest.

  4. Roth IRA contributions are not tax-deductible. However, eligible distributions are tax-free. This means, you contribute to a Roth IRA with after-tax dollars, but as the account grows, you do not face any taxes on capital gains, and when you retire, you can withdraw from the account without incurring any income taxes on your withdrawals.

  5. Why the hell would you feel the need to repeat every other word 3 times just to write it in a board..

  6. Thank You! Excellent video.

  7. Really should take this down and fix it.

  8. I guess if you retire in a tax free state it changes things ?

  9. It is very likely that taxes will go up in the future, so go with a Roth.

  10. Questions if the market is bad

    1) If you contributed lets say 2000$, what happens when your balance at the end of the year is 1800$, less than your contributions? Would you only be able to withdraw 1800$ or the full 2000$ that you contributed?

    2) Also with the same scenario, will the earnings next year be based on my total contributions of 2000$ or the current balance in the roth IRA of 1800$?

  11. he clearly did the math wrong. if he did it right. after retirement with the ROTH IRA you would have 13,600 not 15,600. that makes the traditional IRA better after retirement.

  12. how investment with IRAs ,I don't understand ? can I put the money and that is ? or need invest

  13. so everytime I put let's say $100 into my Roth IRA out of my paycheck I have to pay tax on that $100 or since those earnings are already subject to income tax I do not need to pay let's say 32% on that $100 post income tax money I want in my roth?

  14. The numbers don't relate!

  15. Principal. Principal.. Principaaaaaaal….

  16. Does Roth IRA makes sense in California with 9.3% state income tax plus 25% federal tax?

  17. one thing I don't like in this video is you make it appear as if you have to pay taxes on money you put into a Roth as soon as you put it in.     Roth is after tax dollars,   regular IRA is with pretax dollars.      You aren't gonna care about taxes on the Roth cause you already paid them in your paycheck before you even got it.

  18. Why… $7800… 🙁 come on.

  19. dude, 3,400 x 2 is 6,800. not 7,800. Messes up everything.

  20. worst video ever XD his math is wrong and that makes the difference on the IRA comparison. 3400 x 2 = 6800 not 7800 lol, how did he never notice that. the Roth IRA gives out less money upon retirement in this scenario, if the retiree is in a lower tax bracket XD you don't even need math to figure that out

  21. These videos always give me anxiety because I always feel like he's goimg to run out of space on the page

  22. Assuming 4x Growth and 32% ordinary income tax

    Traditional IRA: $5000 (pre-taxed principal investment) x4 growth = $20,000 – 6,400 tax (32%) = $13,600 at age 59.5

    Roth IRA: $5000 – 1600 income tax = $3,400 invested principal x4 growth = $13,600 at age 59.5 tax free

    Looks the same to me.
    Traditional IRA is better if you belong in a lower tax bracket at retirement. Roth IRA is better if your tax bracket is lower at investment age than retirement.
    Even though you can withdraw principle tax free in a Roth, doing so would cut into your growth, which negatively impacts your potential returns.

  23. Math is wrong.  Traditional is better if you never withdrawal.  

  24. The end value of Roth IRA only amounts to 13600$ in actual(your final amount is wrong in this video, since you made multiplication errors initially), compared to 15000$ in Traditional IRA. I do not get the point why Roth IRA is better, when the final return are less? Can you please elaborate on that?

  25. nice theory. very helpful to understand the logic clearly. Thanks

  26. 3400×2= 6800×2= 13600 🙁

  27. I'm just happy Khan has a video on this.

  28. Dude you made multiple math errors. The 6800 and when you minus, minus without (bracket) you subtract the second minus from the the first minus.

  29. you end up paying taxes on all 401 related dollars (either principal or bonus) anyways. I think traditional IRA sits well with Mr. Mind only if you are sure not to mess with early withdrawals and you are sure to be in lower tax bracket when you retire. Provided in lower tax bracket when you retire, why would you ever get your IRA $s taxed at high tax bracket when you are young. 

  30. What I take from this is that if there is any possibility of needing the money prior to retirement then go Roth. If you are sure that your tax bracket will be lower (or as insurance that it could be) then take Traditional instead. But if your tax bracket remains the same then there is little benefit in traditional as the penalties for early withdrawal are more severe than with roth…

  31. better than traditional?

  32. Because of the 7800 mistake, the traditional IRA would give you $15,000 after 60 years and the Roth IRA would give you $13600 after 60 years so the traditional IRA is still better for you in this example.

  33. He already has, look it up. watch?v= uGpLS_pr7oc
    Remove the space in that url and add it to the end of youtube dot com

  34. He already has, look it up. watch?v=uGpLS_pr7oc

  35. Hey, can do you a video on "life insurance?" Term vs. Permanent…

  36. So hard to watch after the 7,800. AHHHHH!!! OCD moment.

  37. $6,800 not $7,800

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