Dave Ramsey and Suze Orman Agree: This Is Where Your Money Should Be Invested

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This type of account could provide the best tax benefits.

Choosing the right kind of investment account is important. The account type you select impacts the rules surrounding when and how you can access your investments. It also affects what tax breaks, if any, you get for making investments.

While there are many different choices of brokerage account types, there’s agreement among two popular finance professionals on which is best for most people. Both Suze Orman and Dave Ramsey suggest that the best brokerage account for most people is a Roth account. Here’s why.

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Both Ramsey and Orman are proponents of tax-free growth

Roth accounts — including Roth 401(k)s and Roth IRAs — require you to contribute to them with after-tax dollars. Unlike traditional 401(k) and IRA accounts, you won’t get to deduct the amount of your contribution from your taxable income in the year that you invest in retirement accounts.

Despite the fact that Roths require you to give up the opportunity for up-front tax savings, Ramsey and Orman both prefer them.

In fact, Ramsey says you should first invest in a Roth 401(k) if your employer offers one. If your company doesn’t provide a Roth 401(k), then he suggests putting enough into the traditional 401(k) to get any employer matching funds and then directing the remainder of your contributions to a Roth IRA. Orman also urged employees to max out Roth 401(k)s when they are available, and to use Roth IRAs when they aren’t (after earning an employer match).

The big reason both endorse these accounts is because they believe deferring your tax savings is better than claiming it up front.

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“Whenever you hear the word Roth, I want your ears to perk up a little bit,” Ramsey said on his blog. “That’s because Roth basically means tax-free growth!” For her part, Orman commented, “Please don’t go for the tax write-off today so that later on in life you have to pay taxes on a traditional retirement account. Go for a Roth.”

With these comments, both financial experts are touting this key feature of a Roth: The fact that you are allowed to make withdrawals from Roth accounts tax-free as a retiree as long as you’ve followed specific rules, such as keeping the account open for at least five years before taking money out. With a Roth, you can grow money without paying taxes on gains. When you are ready to rely on your investment income as a senior, you aren’t going to have to worry about giving the IRS a cut of it.

Roth IRA and 401(k) benefits

Roths are most beneficial to those who will be in a higher tax bracket upon retirement, as these accounts allow them to defer their tax savings and take advantage of it later when they are at a higher rate.

However, Ramsey and Orman have both pointed out other benefits of Roth accounts as well, including more favorable tax rules if you leave your retirement savings to heirs as well as the fact that Roth IRAs don’t have minimum distribution requirements (although Roth 401(k)s do). RMD requirements mandate you begin taking money out after age 72, but Roth IRAs offer more flexibility by allowing you to avoid this mandate and set your own withdrawal schedule.

Ultimately, you’ll need to think carefully about your own individual situation when deciding whether a Roth or traditional account is best. But with two popular finance personalities both making it clear they prefer the Roth, and Orman urging people to “put every single cent into the Roth version of your retirement account,” you should take a serious look at whether a Roth is right for you.