EP 33 – ROTH IRA vs Traditional IRA – The Great Debate

Mat Sorensen: Welcome, everyone, to the Directed IRA podcast with Mark Kohler and Mat Sorensen, we’re excited to be with you today. The Great Debate, baby. Are you ready to debate?

Mark Kohler: Yeah, I’ve heard of the great race, the great.

Mat Sorensen: The great debate. I think it was like um

Mark Kohler: Is there a great debate in history?

Mat Sorensen: Yeah. Like there’s some presidential, you know, like for like the fourth president of the United States, I don’t know, back in the day when they like

Mark Kohler: Actually cared

Mat Sorensen: When they actually debated, you know, instead of an insult to the whole time. Yeah.

Mark Kohler: Dan Rather going. What do you think you know? All right. OK, all right. The great debate. So the question is everyone, what is better, the Roth IRA? No, I to rephrase that. I was bad. The great debate. The question is, is the Roth IRA better than the Traditional IRA in the long run? Which one wins when you take into account all the tax issues and rates of return? It’s a big question. We’re going to answer it right here on this podcast.

Mat Sorensen: Yeah. And this takes some math. Good thing we got Mark Kohler, trustee, CPA, who has a calculator on his phone.

Mark Kohler: I have Siri, which one is better? She won’t tell me.

Mat Sorensen: So, but we’re going to break it down because this is complex. It really is. And it’s a question everyone has to think about. You work at an employer and you’re like, do you want this to be your Roth 401K or traditional 401K contribution? You’re going to open up your IRA account, maybe your Self-directed IRA here at directed IRA. Do I want to throw in six thousand in my traditional or six thousand in my Roth IRA.

Mark Kohler: And you know what’s going to happen. Yeah, what’s going to happen? You’re going to remember this podcast.

Mat Sorensen: That’s what we hope.

Mark Kohler: You’re going to say. What did Mat and Mark say? Well, people, you can send this to your mom. You can send this to your dad, your kids, your best friend. Don’t send it to your enemy because this is powerful. You don’t want to help them, not for your friends or family.

Mat Sorensen: Let them be lost. Let them be lost. But I’m going to give a little you know, many of you who listen to the podcast know we love the Roth IRA. There’s many reasons for that. But the traditional wins sometimes. And so we’re going to break it down. Sometimes it does win. And in learning these differences and how they operate, I think helps people make a better decision on whether to go traditional or whether to go Roth.

Mark Kohler: Ok, now spoiler alert. Mark Kohler might say the traditional never wins, but maybe and I might say Wall Street sucks again. And I’ve even got a book titled What Wall Street Isn’t Telling You Right Here. The book Financial Freedom. I should have put a chapter on this. I think the second edition is going to have a chapter on this.

Mat Sorensen: I think people demand it.

Mark Kohler: All right, no Mat, I’ve got the the iPad ready to go. Yeah, so should I.

Mat Sorensen: Let’s lay out traditional versus Roth basics. Let’s get everyone on the same page to understand, like, how the heck a traditional works.

Mark Kohler: Yeah, and I could use that example that I shared with you before the show of just a one time deposit maybe. All right. OK, but you explain the basics. All right.

Mat Sorensen: Ok, all right. So the the benefit of the traditional IRA, what’s cool about the traditional IRA or traditional 401K works the same here. When I put a contribution in, let’s just say six thousand in an IRA, I get a tax deduction. The government’s like, thank you for contributing to your retirement account. You get a six thousand dollar tax deduction. All right. Now, if I’m in a 30% tax bracket, I just saved eight hundred bucks in taxes. OK, that’s powerful. So remember, in traditional tax deduction on the way in now, all the money grows, tax deferred in your traditional, you’re not paying taxes, it’s growing and you’ve got investment returns and everything. But on the way out in the traditional, there’s a day of reckoning. You’re going to pay tax as you pull the money out at retirement. So that’s the traditional tax deduction up front. But you’re going to pay tax on the way out. OK. All right, all right, now I want to contrast that to the Roth ready for me to hit the Roth.

Mark Kohler: I’m write. I’m writing fervently here. Everybody’s loving that’s able to watch this on YouTube. You’re going to love it.

Mat Sorensen: Ok, now let’s hit the Roth by put $6000 in a Roth. I don’t get a tax deduction so that eighteen hundred dollar tax savings. I don’t see it. But that money grows in the Roth and at retirement. Just 59.5 For the IRS when you can take it out. I pay no tax on the way out. Totally tax free on the way out. So if you’re cool passing on the deduction now and paying a little more tax now, you get the benefit in the long run of no tax on the way out. OK, now, I don’t want to do too much commentary on what we think. That’s the the rule I think most people are familiar with that. It’s the same for traditional 401(k)’s and Roth 401(k)’s as well.

Mark Kohler: Ok. All right. So I’ve just highlighted this in our two columns and I think we get it now. I’ll share an example. Let’s say this will help illustrate the basics of the Roth IRA versus traditional IRA. Let’s say you’ve got 10 grand. Now, I know the contribution, maybe 6000 or 7000, but that’s just for Mats sake. Just use round numbers because we’re just trying to illustrate the concept. So let’s say.

Mat Sorensen: This could be in your 401k, too. Or maybe it’s between January and April 15th when you can make your two years of contributions for last year in the current year, and then you get in 12. So we’re in at 10.

Mark Kohler: Yeah, that’s why I love my co-host. Great point. OK, we’ve got ten grand. It’s OK. I’m going to put away ten thousand dollars. That’s my investment in my Roth. Or is it remember with a Roth, you’ve got to pay taxes first. So this is not an inheritance from your grandma. This is 10,000 of earned income. And if you’re doing it between January and April 15th, you could kind of piggyback two years to get your 10 and you say, I’m going to put away my 10 grand, but I’ve got to pay tax first. Now, let’s assume a 30% marginal rate. Now, what that means is on your next dollar, your effective tax rate is 30%. Now, I’m combining a fed and state example. You might be in a federal 25% state five or a state 10 and federal 20. Just work with me people I know some you may be in Washington or Texas or Florida with no state tax, but let’s just assume 30%. So 30% off 10 grand. You’ve got to pay my tax. I’m really only putting seven in that Roth, OK. All right. Now, over on the other side, I’ve got my 10,000 I’m going to put into my traditional. And will I get a tax deduction of three grand? OK, that’s pretty cool. Now, again, states can vary on this, you may not be in a state where you don’t get the deduction, just work with me again. OK, so three grand, but I got 10,000 in the hopper. I’ve started that snowball going down the hill, as Dave Ramsey would say. And I’ve also got my seven grand over here that snowballs ready to roll down the hill. Now, let’s say you get a 10% rate of return over the next 30 years. Now save the hate mail. I know some you think 10% is lala land. It’s somewhere over the rainbow. Mark, you’ve been watching way too much of, you know, some movie. So hang tight. We’re going to come back to address rates of return in a moment. But some you know that Wall Street would stick with an 8%. But let’s just go 10 easy math. That’s seven thousand dollars is going to be one hundred and forty thousand dollars 30 years later. Just out of sight. Out of mind. Average 10% rate of return. The 10 grand is going to be two hundred thousand dollars. Now, look at that. There’s a 30% difference on the back end as well. But 30 percent or 200 grand is 60,000. And lo and behold, that’s 140. So if you held things constant and you were in a 30 percent bracket on the way in and a 30 percent bracket on the way out and nothing else changed, and you averaged a 10 percent rate of return in both buckets, you’d be in the same spot effectively if you were just going to drain the account and pay your tax or take that tax deduction on the way in. That’s the basic example. Now, what would you add to this? Is this realistic? I don’t know. What would you how would you explain this example or a different?

Mat Sorensen: Yeah, I mean, look at the math. It’s pretty cool on the way out. The reality is, though, someone is just going to do 10 and ten, it’s more like if I’m a traditional person, I’m going to put in a ten and I know I got a tax deduction, but I’m going to put the full ten in and we know that. But on the Roth the Roth person is going to put the ten in and deal with paying the tax. So Wall Street wants you to think that, well, the Roth person’s not going to put all the money in. Yeah.

Mark Kohler: And they think the traditional person’s. What are they going to do with that tax savings?

Mat Sorensen: Yeah, they think they’re going to invest that tax savings, which they know

Mark Kohler: Now, that’s a spoiler alert we’ll come back to that concept. But most people don’t just put away 10 grand. What they’re going to do, they’re six grand a year. So Mat tell me your example there, I think you had one. OK, OK. What’s Wall Street what would Wall Street say? They’re going to say eight percent.

Mat Sorensen: Right, OK, yeah, they’re going to say eight percent. The S&P 500 fund go buy Spy or any mutual fund that models S&P 500 returns over eight percent over the history. So let’s just do eight percent. All right.

Mark Kohler: We’ve got an eight percent return over 30 years,

Mat Sorensen: Over 30 years, making six thousand dollars a year in contributions. All right.

Mark Kohler: And I’m going to do the whole amount in the Roth and the whole amount into the traditional, because that’s what people are going to do. They’re going to find a way to pay the tax to do the Roth. So the 6,000 and it’s going to grow at eight percent over 30 years. And I’m going to put that 6,000 of my traditional how much is going to be in my buckets at the end of that time period?

Mat Sorensen: $750,000.

Mark Kohler: Ok, I’m going to have $750K sitting in my Roth IRA 30 years from now. And the same thing sitting in my traditional an eight percent rate of return because I did my six grand.

Mat Sorensen: Compare apples to apples. You can throw six and a traditional you can throw six Iraq. Don’t get caught up in this. What are you doing with the deduction? Like, that’s just. You want to put 6000 people just like get the benefit of the tax section and spend it or just bite the bullet and pay the extra tax, which is six.

Mark Kohler: Now, on the face of it, you’d say, well, the Roth wins because I’m going to have six thousand seven hundred fifty grand tax free or seven hundred fifty grand I’ve got to pay tax on. And that’s what Mark in Mat say every day of the week and on Sunday. But no Wall Street. Hence what Wall Street isn’t telling you. They’re going to go. No, no, no, no, no. You got to take into account that tax deduction. So the tax deduction you got on the traditional is. Yeah, 30%, which would be 1800 dollars. Now, Wall Street, when they start to debate this and you’re going to go to websites where they go, oh, no, no, no, the traditional might win. The first thing they’re going to want to tell you is that before they talk about tax rates when you retire, because some you’re already thinking, well, I’m going to be in a lower tax bracket when I retire. Hang tight. We’re going to come to that. But the first main thing Wall Street says is you’re going to invest that 1800. What happens to that Mat? What’s the numbers on that?

Mat Sorensen: Ok, if you invest the eighteen hundred here, let me go back and do it

Mark Kohler: At 8%

Mat Sorensen: Ok? You’re going to be one hundred and fifty bucks a month. Eight percent over 30 years. That’ll be $220,000. Oh wow. That’s pretty good. Yeah. Well now. You if you’re disciplined and do that, you take credit for this, we’re just saying the reality is people don’t actually do that.

Mark Kohler: No, they don’t. So we’re going to come to Mark and Mat’s spoiler alert and kind of our B.S. alert that

Mat Sorensen: And here for. Can I say what that would be too. Yeah, like if you if you were at a 30% tax bracket, you know, and you’re saving eighteen hundred bucks a year, that’s fifty four thousand dollars in tax deductions.

Mark Kohler: Right.

Mat Sorensen: Over 30 years. If you’re a state consistent or Ave’s a 30 percent rate every year you save fifty four thousand dollars in taxes. That was the benefit of the deduction on the way in.

Mark Kohler: Ok, now I know you’ve got a seed in a harvest example we’re going to come to in a minute. Yeah, but. Let’s finish this example, what Wall Street would like to say is don’t forget the deduction and they’re also going to say 8% return. You know what’s interesting, folks, is we went to a lot of the Wall Street websites where they do calculators on what’s better, Roth versus traditional. They wouldn’t let you run a calculation with greater than an eight percent return. Keep that in the back of your mind when Mat Sorensen talks about the seed versus harvest. OK, but under this example, the next big debate that comes up in Wall Street is they say, John and Mary, remember, when you retire, you’re going to be in a lower tax bracket. So you need the deduction now. And this is your accountant that, you know, was practicing 30 years ago. They’re going to go you don’t do the Roth. You need a deduction. OK, well, here’s what we have found. Rule number one. I’m going to say it, Mat is going to say it was say two different ways, because sometimes it’s helpful that way. Rule number one, if the tax rate is higher later. Or the same, or even within 10 percent, so let’s say it was 30 percent now and down the road, I’m at a twenty five percent bracket, 30 or even higher. The Roth always wins because think about it, folks, you’re going to get the same deduction later or pay the same tax later on the way out. So the tax deduction didn’t help you on the way in. But rule number two, if the tax rate is less by at least 10 percent when you do retire then the traditional wins with this 8% model that we just explained. So this is where Wall Street and that accountant, that old stodgy accountant goes, you need a tax deduction because you’re going to be in a lower bracket in the future. And Mat, you had a really good example for me before the show started when you start thinking about state tax rates.

Mat Sorensen: Yeah, yeah. So think of someone in California, you know, and while you’re working, maybe you’re paying 30% tax rate on your income between federal and state, but then you move to Texas in retirement and that state income rate. Maybe that’s a five percent or a 10 percent swing. I don’t know your income levels. Of course, that’s off the table now. And so now the traditional actually becomes a little more valuable because I’m not paying tax on the way out on that little piece on the state side of things. So for those with traditional accounts already or saving with traditional, if you retire in a no income tax state, you’re going to get the benefit of not paying tax on the way out. And even if you’re accumulated and got all the deductions in California on your California income taxes you were earning. So that’s a good caveat and it’s happening a lot. How many Californians live in Texas now?

Mark Kohler: Yeah, when I was just. Yeah. And the Washington State example, a lot of people moved to Washington. So that’s why Seattle had a huge boom in King County over the last 20 years, is because Californians are like, we love it up here. We love the Seahawks, the Mariners. We’re going to go up north, cool off a little and no state tax on retirement. Yeah. So, OK,

Mat Sorensen: So let me say this. When we’re saying a 10% swing, I just want wanna make sure we understanding this. Let’s say when you’re working, you’re paying a tax rate of 30% and you’re saving you got a salary or got income from your business, your effective rate of about 30% state and federal. But when you retire. Your salary leaves and now you maybe hope for some other passive income, you’re starting to get Social Security, which is taxable, by the way, you know, you start drawing on your retirement that bumps up your income too get some rental income, whatever, you know, I mean, you got some income now. Now, maybe you’re at a 25% tax rate. All right, the Roth is always going to win, you’ve got to have

Mark Kohler: Because the change is only five percent,

Mat Sorensen: Right? Right. Because the change is only five percent. You’ve got to have a greater than 10 percent swing in retirement for the traditional to win out. Right. All right. And that that assumes an eight percent return. And that’s why we ran the numbers in the models. So if you say, all right, Mat, I was at a 30 percent rate when I was working, but I’m at 15 percent in retirement. Now is a traditional makes sense? Yeah, because the value of your tax deduction, you know, on ten thousand bucks was three thousand dollars versus the tax you’re paying on ten thousand dollars on the way out of only fifteen hundred. So you net it out there, you made out better, you know what I mean?

Mark Kohler: I love it. OK, now we’re ready here. Is the reveal and this is where we piss off a lot of Wall Street.

Mat Sorensen: This is like the magician.

Mark Kohler: Yeah, I’m going to do David Blaine. OK, now here’s the reveal. And this is where we piss off a lot of the Wall Street cronies and. This is what you’re going to not find on any of those Wall Street supported websites that are doing this comparison. They’re not going to talk about these three things. So for those watching on YouTube or those regular listeners on our podcast, this is where you hope you go. I got to be listening to this podcast and share it with everyone I know, because this is the big secret that Wall Street doesn’t want to talk about. So there’s three points I added third one, Mat, I’m going to surprise.

Mat Sorensen: Ok, all right. We have to give a clue, but OK.

Mark Kohler: All right, OK, here’s number one. All right. OK. That the big sssumption that you’re your Wall Street adviser or accountant is going to make and talk people into here is that you’re going to be in a lower bracket when you retire. And this is where abouts the ometer gasometer, go, rip, rip, rip, I have not met with the client ever that wants to make less money when they retire. Have you met?

Mat Sorensen: Yeah, I haven’t. I don’t know who these people are that yeah. It can’t happen but they’re not shooting for it. No. Yeah. And. Do you think tax rates and policy is going to lower rates in general on the same income levels, even less the same rates will probably be higher in the future? Let’s be honest. Mm hmm.

Mark Kohler: Ok, so that’s BS ometer one, so whenever your accountant or financial adviser goes, you’re going to be in a lower bracket, you’ve got to go probably I don’t want to be in a lower bracket. And by the way, if you looked at Washington administration right now, tax rates are going up, not down.

Mat Sorensen: So that’s gone. Yeah, yeah. And I would add remember that issue of well let me say this because there’s a little truth to that, but it’s not an absolute thing. That’s the problem is when Wall Street and all these advisers says this is like absolute truth to them. Yeah. If you had a day job and you saved in your 401k and you had a good salary and then you retire and you had nothing else but a retirement account, you had no other income but that job you left. That’s that’s who they’re talking to. They’re not talking to the small business owner. They’re not talking to the investor, not talking to the person that builds rental properties. They’re not talking to the person that built a large retirement account, which is going to get taxed on the way out. If you want to be taken a hundred grand a year out of your in your retirement account in retirement, that’s going to put you in a hundred grand tax bracket. OK, it’s replacing maybe what you were making before. And that’s what we want. We want you to have a large enough retirement account. But what they’re thinking is, no, no, no, you made one hundred grand while you were working and then you hit retirement now. Now you make twenty, you make 30. So you’re in this low bracket. No. Don’t shoot for that.

Mark Kohler: I hear you. OK, now I’m supposed to be in a training meeting with some of our accountants and attorneys right now, and I’m just telling them we’re finishing up the podcast now. Second reveal. No one saves that tax savings in our example of eighteen hundred dollars a year, if you’re putting in six and you’re saving 30 percent. What do you do with that eighteen hundred dollars? You’re going to go pay down bills, pay off debt, help your kids in college, go on a trip buy big-screen TV. And you know what? I don’t I’m not opposed to that. You saved your six grand and hopefully you’re out of debt at eighteen hundred dollars is a tax refund you should enjoy because you did your savings.

Mat Sorensen: Yeah.

Mark Kohler: No one goes and saves that. They really don’t.

Mat Sorensen: They don’t. That is the reality of what we see over here. And so because what they’re saying is that 1800 bucks you’re putting every year into a taxable other like brokerage account or other investment that’s getting you the same return. People aren’t doing that. They’re throwing the six and traditional or Roth. They’re not throwing that eight, 10 bucks in also somewhere else to help this model, an argument that the traditional wins because that adds two hundred grand to the model over 30 years. If you remember back from the numbers, which the naysayers.

Mark Kohler: Well, go ahead. Finish that point,

Mat Sorensen: Which sounds good. And it makes the math work out to make the traditional more look more beneficial. And if you were disciplined and actually did that, good for you. The traditional may work, assuming you’re not, you know, the tax rates we’re talking about here don’t have a have a 10% swing, so. But the reality is the people just don’t do it that’s all.

Mark Kohler: Now, you made a concession on point number one. I’ll make a concession on point number two. Here’s my concession. Do we encourage our clients to use that $1800 and go buy a rental property, go build their small business? Does that $1800 really have a time value of money? Sure it does. And I would hope my clients use it wisely and build more wealth outside of their retirement account. And some do so. But again, in this model, you can’t treat it as an absolute. Like, we just can’t presume that every year that 1800 dollars was invested properly, wisely, and it was of use to you, some years it’s not held that it sometimes gets sucked up another tax bill, so. But I get it, there’s a time value money there, it’s a benefit you’ve got now you’ve got to give it a value, Mark, OK, I can concede to that.

Mat Sorensen: All right. Our experience is no one does, but go ahead.

Mark Kohler: All right, now, third BS ometer alert all of these models, which I said a little earlier, that you’ll find on Wall Street supported websites. Cap this analysis at an eight percent return. Do you know why? Because if you start calculating this at a nine, 10, 11 or 12 percent rate of return, the traditional never, ever, ever wins, as Smalls would say in the movie Sandlot since 4th of July was recently celebrated. Never. So you’re it doesn’t because of a concept that Mat Sorensen the leader in this industry of Self-directing has coined the phrase seed versus harvest Mat, would you please explain?

Mat Sorensen: Yeah, some other people have used that. But, you know, I really, you know, brought it to the forefront. So. Remember, on the traditional, you’re getting a tax deduction on the seed, the little six thousand, you’re putting it, but you’ve got to pay tax on the harvest, on the way out when the thing’s grown. And if you have awesome growth in that, give you a tax deduction on six thousand, you put in having to pay on the six thousand on the way out, plus the growth of that six thousand. You’re paying a crap load of tax now, wouldn’t you rather switch the dynamic? Don’t take a tax deduction on the way in, as you do with the Roth, like I’ll pay the tax on the seed. I’m OK with that. Let me pay no tax on the harvest, though, can I get that deal? That’s the Roth IRA. And so when the harvest is really large and you’re going to get a 10% return, our clients, the Self-direct and have can have a huge deal go through because they’re investing in what they know. They’d be fools to use a traditional IRA. They don’t want to pay tax on the harvest on the way out. And so that’s going to be the large numbers when we talked about this, you know, six thousand dollars a year. Turning out to be seven hundred and fifty grand. Well, six thousand dollar contributions over 30 years is one hundred and eighty grand. OK. Would you rather pay tax on one hundred and eighty grand or pay tax on 750 on the way out?

Mark Kohler: Yeah, so let’s use an extreme example that’s been in the news. We covered this on our podcast at Main Street Business a couple of weeks ago. Peter Thiel, one of the founders and PayPal and Facebook, or if I could say initial investors. He had a Roth that he used for the one or both of those projects that is now worth six billion dollars. Now, do you think Peter Thiel would go back in time and trade that investment? For a tax deduction 20 years ago, or do you think he wants that six billion tax free? Obviously, take the tax free bucket now, this is where we get hate mail, too, so let’s go back to this rate of return concept. We I know this makes some of you so mad, but I’m just going to say it and please investigate it. Go out and get three, five, 10 opinions. I will stand by it. When you start Self-directing on average and you start investing in what you know, which could be real estate, crypto, precious metals, small business, venture capital. That’s what Peter Thiel did. When you start investing outside of your Wall Street controlled brokerage account, which they call self-directing, but it’s really not that brokerage account is going to average between six, eight or nine percent, but a Self-directed, you’re lucky if you’re lucky, a Self-directed account. And again, this is where I’ve got to be careful for potential lawsuits. And in everything I’m going to say, this results very we are not guaranteeing this, but what we see well well over average our rates of returns of 15 percent or more. They do the Peter Thiel, they have the Peter Thiel experience. They’re doing real estate. They’re doing all sorts of small business projects with a Roth IRA where the harvest is far greater than eight percent. Now, that doesn’t mean it’s going to happen to you. You can invest your Roth in some startup and lose it all. But on average, our Roth investors have huge harvests that are never taxed. And I say well enough to avoid a plane.

Mat Sorensen: Yeah, yeah. I mean, that’s not our role as investment advice. But, you know, we do see the accounts and the success people have. And it’s true in a Self-direct account, I’ll say this there’s more wipeouts than just buying X, Y, Z, mutual funds. So some, you know, but there’s also a lot more home runs and so depends on what you want. And that’s why we say invest in what you know. The assets, you know, don’t just feel like you’re restricted to Wall Street, but even if you’re like, OK, guys, I don’t even know what the heck you’re talking about, self-directing just think of this traditional Roth concept behind the S&P 500 fund. Eight to 10 percent return, most Wall Street brokers and advisers cannot beat it because they know they take their fees. You know, they get you in stuff. They think they can beat it and they don’t. And so just even if you assume that the Roth still going to win out, but the exceptional cases of where the Roth is obviously a better investment for those of you that do know investing, that know what to invest in, whether you’re a real estate pro or you’re in tech and you want to invest in other tech startups or whatever it is, private money lending, we see clients loaning at 10 percent plus two points. I mean, those are awesome rates of return. They’re going to that are going to beat the market.

Mark Kohler: So over and over. Now, I have to take issue with something my co-host said and I’m sorry. He said there’s going to be wipeouts and there’s going to be home runs. That makes no sense at all. What I think he meant to say, sometimes there’s wipeouts, sometimes you get barreled.

Mat Sorensen: Of town that maybe strikeouts and home runs,

Mark Kohler: I think, yes, you could.

Mat Sorensen: Wipe outs and getting barreled. Yep.

Mark Kohler: For those of you that have surfed before, maybe on a wild and crazy trip to Hawaii and you’ve got a surf lesson and you surf to one foot wave, it’s fun. I get it. But once once on the North Shore, I had the chance of getting barreled and it was one of those scariest experiences of my life, because when you come down that face looking to you and I’m a goofy foot, so my right foot forward, I’m going like, yeah, coming down the face and and I see the barrel starting to form. You have a split second decision now. I’m looking down at coral about 12 inches below the water, just flying by me 100 miles an hour. And then I see this barrel, a six foot wave ready to crash. And I have a choice. I can either bend down, get low and pray that I don’t get pummeled into this coral when the, you know, the barrel ends or I can turn right and then just surf the whitewater in. Yeah, I chose Whitewater. I know I did I did because it’s scary. It is so scary. I but

Mat Sorensen: But yeah.

Mark Kohler: Oh, it’s one. I’ll never forget that experience. So it was a thrill. I come down the face, I’m curving a turning. I felt like I was you know, pro surfer as I was, I was loving it and then I had that split second and I blew it. I kind of got buried once before on a right and another wave a year or two later it kind of hit my back. But I didn’t get that full barrel experience and now I’m getting too old. I just I just dream about it. Maybe someday, you know? Yeah.

Mat Sorensen: You get back out there you’ll get back out there.

Mark Kohler: I got to get back out there. So sometimes you wipe out people, sometimes you get very old and.

Mat Sorensen: There you go. Thanks for thanks for really explaining that better, just because that would wipe out and home run didn’t make much sense. OK, OK,

Mark Kohler: Moral of the story Mat.

Mat Sorensen: Another cool thing I just want to say, OK. Remember this on the Roth IRA to know armed when he hit 72. You don’t have to pull money out if you don’t want to. If you’re still in a high income bracket and you’re like, man, I don’t even need this money. I’m still making money. I don’t need to pull out my Roth, keep letting it go and grow tax free in the traditional, though, at 72, you got to start pulling the money out. OK, so that’s another perk. If you know a little differentiation on the Roth is it gets to keep staying invested. The traditional you got to start pulling money out of 72 and taking your RMD.

Mark Kohler: Another little side note, when you die your family is going to have to pay tax on your traditional IRA, which is called IRD income in respect of a decedent. And these are going to be typically younger people than you. You died, they inherited your IRA. What bracket do you think they’re going to be in? And so if you’re going to follow this Wall Street mindset of you’re going to be in a lower bracket later, but then you die, we’re jacked back up to a higher bracket with your family, your kids that inherit your money, but with a Roth IRA. Can take that money out, penalty-free and tax-free in a Roth, so IRD and RMD to two things we hate R&D and Armande. Yeah, I like OMD, Orchestral Manoeuvres in the Dark OMD, little 80s band.

Mat Sorensen: The band OK Orchestra

Mark Kohler: Is an orchestral Manoeuvres in the dark. I saw them in concert OMD.

Mat Sorensen: Oh OK.

Mark Kohler: It was they were with Thompson Twins Night 1986 Baby.

Mat Sorensen: Hold me now. Isn’t that Thompson twins. Yeah. Yeah, that’s a good one. My band used to play that song.

Mark Kohler: Or everybody wants to rule the world. Did I hit that, did I nail that?

Mat Sorensen: That was pretty good. All right, OK, let’s close this out because that’s obviously. Yeah. Oh, boy. I just lost some listening to everyone for hanging in there on Roth versus Traditional. We hope that you got some principles from that. We know the math is tricky here, but just remember a couple of points. One, do you want to pay tax on the seed versus the harvest? That’s my number one thing of why I love Roth. Yet we never know what taxes are going to be on the way out. But we do know that we’re going to have a larger account on the way out. And I’d rather bite the bullet now and pay tax now on the seed and get the benefit of pulling out the big harvest a larger amount at the end of the day with all the growth, the compounding everything. Yeah, zero tax on the way out.

Mark Kohler: And if I and we did give three BS ometers, but I’m not going to go with the fact people don’t value or use the tax deduction, because I’ll concede on that one a little bit that there is a value there. But I am going to say this here’s my big takeaway is you could very well be in the same tax bracket later on in life that you’re in now or a higher bracket, because my clients don’t want to retire on the same income they’re making now. They want to I’m sorry, they’re on less income than they’re making now, right?

Mat Sorensen: Yeah, just. Yeah. And even if you’re like. Yeah, but you won’t have a job. Yeah, but I better have a million dollar retirement account. I’m taking nice, good, healthy distributions for retirement

Mark Kohler: Like rental properties.

Mat Sorensen: They’re like,oh no, you’re just going to take we’re just assume you’re going to take thirty thousand from your retirement account. OK, my moving into a mobile home. Where do you have me financial adviser. Where am I

Mark Kohler: Living. Yeah. Yeah. Million chump change.

Mat Sorensen: And I’m going on vacations to to where

Mark Kohler: Like Four Corners.

Mat Sorensen: I got to have an early bird special every time this morning when I get it out early bird special.

Mark Kohler: We’re going to take a Southwest flight to stay in a Hampton Inn and Albuquerque, New Mexico. And I’m going to eat at Denny’s now. That’s that’s a vacation. Yeah. Do the breaking bad tour save up for that.

Mat Sorensen: Could be worse.

Mark Kohler: Yeah. OK, thanks everybody. Hopefully this was helpful. And please share this. If you did find it helpful or do not share it, if you discussed it or Mat. And please give us a five star. We appreciate it. Thanks for viewing this on YouTube or catching this on the podcast. See you next week.