Dave Ramsey Claims This Retirement Account Can't Be Beat When it Comes to Building Wealth

Dave Ramsey, one of the most well-known personal finance experts, regularly gives advice to his listeners about retirement savings. One point he stresses is that the type of retirement plan people choose can make a significant impact on their lives during their golden years. That's because some retirement accounts allow people to withdraw contributions tax-free in retirement, while others don't.

A Roth IRA is a type of retirement account that Ramsey says is a strong wealth-building vehicle because workers contribute to it using after-tax income. Then, it grows tax-free, and withdrawals are tax-free after age 59 and a half. Here's more information about this type of retirement account, including more reasons why Ramsey recommends it.

401(k)s and Traditional IRAs(k)s are not the same as Roth IRAs

As mentioned, workers make Roth IRA contributions using after-tax income, which means they can withdraw them tax-free in retirement, so long as they meet certain qualifications. Traditional IRAs and 401(k)s work differently, because workers contribute to them using pre-tax income. That means that when you withdraw from those accounts in retirement, you'll have to pay taxes on your withdrawals. Essentially, workers choose between saving on taxes now or saving on taxes in retirement.

Other reasons why Ramsey favors Roth accounts

Ramsey prefers the tax savings Roth accounts offer because many people don't know what their tax bracket will be in retirement. The benefit of the Roth is that even if you are in the highest tax bracket in retirement, you can withdraw your money from it tax-free. With a 401(k) or a Traditional IRA, you'll have to pay taxes on any withdrawals at your ordinary rate. Withdrawing a large amount could also move you up to the next tax bracket, which may cause you to pay more in taxes.

The biggest difference with Roth IRAs: No RMDs

The most significant difference between Roth IRAs and other accounts is that Roth IRAs have no Required Minimum Distributions (RMDs). That means that if you have other ways to fund your retirement, you can leave money in your Roth IRA for as long as you want. Your money can grow without the pressure of having a legally required withdrawal. With traditional IRAs and 401(k)s, investors are required to take a distribution starting at age 73.

Current 2026 Roth IRA contribution limits

The downside of Traditional and Roth IRAs is that the annual contribution limit is $7,500 (or $8,600 for those age 50 and older), whereas the 401(k) limit is $24,500. Additionally, to be eligible to contribute to a Roth IRA, you must earn less than $153,000 as a single filer or less than $242,000 as a joint filer. Those who make above that amount can still contribute, though, through something called a Backdoor Roth IRA, where they convert a traditional IRA to a Roth IRA. Keep in mind you will have to pay taxes on the amount and file the appropriate IRS forms.

Ramsey still supports getting 401(k) employer matches

Even though Ramsey is a major proponent of Roth IRA and believes those are the best retirement accounts for wealth building, he still supports people getting their employer matches. An employer match is essentially free money that your employer gives you for contributing a specific amount.

Each employer sets their own policies regarding matches, so taking the time to understand what you have to contribute to get the full match is important. It's also a good idea to understand your employer's vesting schedule. When you are fully vested in your retirement plan, which could be immediately or in a couple of years, depending on your employer, that is the point where you have full ownership of the matching funds your employer contributed.

This is the savings order Ramsey recommends

If you do have an employer match, Ramsey suggests a specific savings order for your retirement. First, he says to invest enough in your 401(k) to get the match first. Once you get the match, he says to then max out your Roth IRA. If you have money to invest left over after that, he says to then go back and add more to your 401(k).

How to get answers to your financial questions

Dave Ramsey hosts his radio show daily, which is also a podcast. You can call it anytime to get answers to your financial questions. If you need personalized advice, make an appointment with a financial planner. A financial planner can review your current retirement balances, take the time to understand your goals, and make recommendations that are specific to you.

Bottom line

Ultimately, it takes time to reach your retirement goals, and understanding which retirement accounts have the most tax advantages can help. Of course, what's best for one person might not be best for another person, so make sure to run your own numbers and speak with a tax or financial professional if you have questions about what strategy is best for you.

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