Updated

Updated · AOL · Sep 6

Dave Ramsey Urges 401(k) Match First, Then Roth IRA, With 2026 Limits at $24,500 and $7,500

Updated

Updated · AOL · Sep 6

Dave Ramsey Urges 401(k) Match First, Then Roth IRA, With 2026 Limits at $24,500 and $7,500

Q: Could following Dave Ramsey’s strict Roth advice actually cost you thousands in lost upfront tax breaks today?

Yes. If you follow a blanket “Roth over traditional” rule, you can give up meaningful tax savings today, especially if you are in a higher current tax bracket and expect a lower one in retirement. A traditional 401(k) reduces taxable income now. If you earn $100,000 and put $10,000 into a pre-tax 401(k), your taxable income falls to $90,000. At a 24% marginal federal rate, that is about $2,400 in immediate tax savings; at 32%, it is $3,200. Over several years, that can easily add up to thousands of dollars in forgone tax breaks if you choose Roth contributions instead. Ramsey’s case for Roth is still strong for many workers. Roth withdrawals can be tax-free in retirement, Roth IRAs have no lifetime required minimum distributions, and tax rates in the future are uncertain. Those features are especially attractive for younger workers, people in lower tax brackets now, or savers who want tax diversification. But the stronger takeaway from the broader evidence is that the real choice for many workers is not “401(k) or Roth IRA.” It is traditional 401(k) versus Roth 401(k), since many employer plans now offer both. That allows workers to get the employer match, keep the higher 401(k) contribution limit, and choose the tax treatment that fits their situation. For many households, the most efficient answer is a mix: capture the employer match, then split savings between pre-tax and Roth to balance today’s tax break with future tax flexibility.

Q: How can high earners secretly bypass the 2026 Roth income limits without triggering a massive tax penalty?

High earners can legally get money into a Roth in 2026 through a backdoor Roth IRA, and in some workplace plans, a mega backdoor Roth. The key is to avoid making a direct Roth IRA contribution once income is above the IRS limits, because that can trigger the 6% annual excess-contribution penalty if left uncorrected. For 2026, direct Roth IRA contributions phase out at modified adjusted gross income of $153,000 to $168,000 for single filers and $242,000 to $252,000 for married couples filing jointly. Above those ranges, the standard workaround is to contribute to a traditional IRA with after-tax, nondeductible dollars, then convert that money to a Roth IRA. Roth conversions do not have income limits. The main tax trap is the pro rata rule. If the saver already has pre-tax money in traditional, SEP, or SIMPLE IRAs, the IRS treats all those IRA balances as one pool, so part of the conversion becomes taxable. Many planners reduce that risk by moving pre-tax IRA money into an employer 401(k), if the plan accepts roll-ins, before doing the conversion. Proper reporting on Form 8606 is essential. A mega backdoor Roth can allow much larger Roth funding, but only if the 401(k) plan permits after-tax contributions plus in-plan Roth conversions or in-service rollovers to a Roth IRA. In 2026, total 401(k) additions can reach $72,000, excluding catch-up rules, creating substantial room for after-tax contributions to be converted.

3 articles · Updated · AOL · Sep 6

Ramsey’s recommended order is to contribute enough to a 401(k) to capture the full employer match, then direct additional retirement savings into a Roth IRA.
His preference for Roth accounts rests on tax-free qualified withdrawals and his view that future tax rates may not be lower in retirement, making tax-deferred 401(k) balances less valuable after taxes.
Contribution limits still push many workers to use both accounts: 401(k) plans allow up to $24,500 in 2026, versus $7,500 for Roth IRAs.
Ramsey also tells followers to invest early and consistently, target 15% of gross income for retirement, and favor growth stock mutual funds over cryptocurrency or hot stock picks.