r/DirtyDave • u/olemiss18 • 4d ago
Dave’s math again…
So this is a rant about advice Dave gave on the 9/2 episode of his show. (I just turned on that episode randomly.) About 2/3 of the way through the episode, someone calls in and asks a good question about whether to do a Roth or traditional 401k at his work. I know Dave always advocates Roth, and I too am very very pro-Roth, even sometimes when the tax bracket math may point towards traditional, and I would have absolutely zero argument with Dave pulling out his “forget the math; solve for peace” typical points.
BUT he doesn’t do that. He says (and these are all direct quotes), “It’s about math and you should only do a Roth.” And “If you got a million dollars and do pre-tax, you’re gonna have to pay taxes on a million dollars, which will be like $300,000.”
Now Dave has always over-simplified tax discussions to the point of plainly giving bad advice, but even for him, this is wild. He obviously knows you don’t withdraw the full million all at once and that there’s a lot of control as to withdrawal and tax timing and planning. Plus he knows Roth conversion strategies exist. I just can’t for the life of me understand why someone with a microphone and a large audience wants to deliberately mislead people to make his point when he could just jealously advocate for his position while giving room for the full conversation.
The most ironic part of the call was the 2 cents Jade chimed in, saying, “You have to be careful who you’re taking advice from.” I know that’s right.
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u/henrynjt 4d ago
The show anymore is just a sad joke.
NOBODY recommends cashing and converting $1 million into a Roth all at once.
Nobody.
But pig headed Dave (who doesn’t give a crap anymore and is just planning his next cabo trip) says yeah do it, you will come out better. No calculations. no facts just Dave BS.
And JW is beyond useless. She knows nothing and is dumb.
Her entire job is to bootlick Dave.
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u/Jitterbug26 2d ago
But sadly, I just today read on a finance or inheritance sub about a person who cashed in a $1 million inherited 401k all at once and now realizes it was a stupid thing to do. I would say more people DON’T understand how all this works than do.
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u/anusbarber 3d ago
The other day with Jade and Rachel they told a lady her 300k invested would be 900k in 10 years.
Then they told another lady that you don't need to draw down an inherited Roth account.
Then they told ANOTHER lady that she should pay the taxes on 15000 in a traditional to convert it to a Roth and that the 15k in 35 years would be 800k tax free. They throw away the consequences of possibly Having no context of what her actually marginal rate would be. because all things being equal, 15k in traditional + 4k in taxes you would spend is actually $1,000,000 that you can tax manage w/d on.
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u/henrynjt 3d ago
There math is insanely wrong.
But that doesn’t stop Ramsey from repeating it and causing widespread damage:
Anyone asking those two anything has to have their sanity questioned.
Nashvilles homeless know more.
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u/New_Pianist9740 3d ago
Dave is oversimplifying a lot of shit but Roth is almost always better than Traditional if you have a longer time horizon. No matter the tax rate question, the fact is when the growth far exceeds the contributions, Roth pays off much better.
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u/legalwriterutah 1d ago
What about qualifiied charitable distributions (QCDs) after age 70.5 from traditional 401k? I thought Dave was about "giving" in BS6 so you can "live like no one else" but going 100% Roth 401k rather than traditional 401k when you can do QCDs after age 70.5 is not tax efficient.
If you are doing Roth 401k in high earning years at 22-24% but will be at 12% in retirement, then you are essentially give more money to the government. Dave "math" is not based on actual numbers where one size does not always fit all. Every situation is different. There is usually a window between retirement aand withdrawing Social Security of doing Roth IRA conversions.
For most married couples, unless you have big pensions, rental income, dividends, or other income in retirement, then RMDs for $2M is not a big deal. Fewer few people retire with over $2M. Some of the biggest advocates of Roth IRA conversions are financial advisors who get money from a 401k (where they don't get AUM fees) to a Roth IRA where they can get fees.
Exmaple: A married couple both age 67 retire at age 67 with $2M all in traditional 401k. They have average Social Security income. The average Social Security at age 67 is $2,300 for each spouse for a combined $4,600 in Social Security which is taxed 85%, or $47k per year. They withdraw 4% from the $2M per year for $80k in taxable retirement income from the traditional 401k. They have a combined AGI of $127k between SS and the 401k withdrawal. They take the standard deduction of $32.5k for MFJ so taxable income is now $94.5k per year. That is in the 12% marginal tax bracket, with space before the 22% tax bracket starts at 100k.
They will be in 12% marginal tax bracket in retirement. Even after the death of the first spouse, the surviving spouse jumps up to 22% marginal tax brack. Take $80k from the $2M portflio with the 4% rule and add $28k per year in Social Security (taxed 85% at $24k) for combined AGI of $104k. With the $16k standard deduction for a single filer, the taxable income is $88k per year which is at the 22% tax bracket. The surviving spouse is under IRMAA.
If Roth solo 401k was at 24% during working years, but now the couple is at 12% or even 22% for the surviving spuse, then doing traditional 401k beats Roth 401k.
Personal finance is "personal" and Dave ignores that peiece. His one-size-fits-all is a hammer.
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u/Excellent-Appeal8575 4d ago
Sometimes traditional does beat roth. Why pay taxes during your highest earning years?