Dave Ramsey, Charles Schwab raise red flag on IRAs, Roth IRAs

Americans saving for retirement remain focused on maximizing the money they will have available once they stop working, and Individual Retirement Accounts (IRAs) play a central role in that planning.

As households evaluate tax treatment, contribution strategies, and long‑term investment choices, many look to established financial voices such as Dave Ramsey and firms like Charles Schwab for clear explanations of how traditional IRAs and Roth IRAs function.

Their ability to tackle red flags Americans encounter often highlights key rules, overlooked details, and practical considerations that can influence how effectively these accounts support long‑term goals.

After years of reporting on Americans’ retirement concerns, I’ve consistently seen how strongly people seek reliable, fact‑based information to help them make decisions to support their financial futures.

“An IRA will likely be an important part of your retirement game plan,” Ramsey wrote. “But first, you need to know how an IRA works and which type — traditional or Roth — will be the best choice for you.”

“They both offer tax-advantaged ways to save for retirement, so a basic starting question is: What kind of tax advantage would you prefer?” Schwab asked. “To put off paying taxes on your savings until you retire, or to get it over with now by paying today?”

Charles Schwab explains traditional IRA, Roth IRA taxes

“A traditional IRA is an individual retirement account that allows you to make contributions on a pre-tax basis (if certain requirements are met) and pay no taxes until you withdraw the money,” Schwab wrote.

Potential growth inside the account is allowed to accumulate on a tax‑deferred basis. Once an investor reaches age 59-and-a-half, any distributions are treated as ordinary income for tax purposes.

Taking money out earlier can trigger a 10% early‑withdrawal penalty in addition to any applicable state taxes.

Beginning at age 73, account holders must take required minimum distributions (RMDs) each year (RMDs will rise to age 75 for those born in 1960 or later). Failing to withdraw the mandated amount can result in a penalty on the portion that should have been distributed.

“In contrast, Roth IRA contributions are made with after-tax dollars,” Schwab wrote. “You can withdraw contributions to a Roth account anytime, tax- and penalty-free.”

Potential gains in the account can accumulate without being taxed, but those earnings are only withdrawn tax‑free once the owner is at least 59-and-a-half and the account has been open for more than five years. If those conditions aren’t met, the earnings portion of a withdrawal may be subject to income tax.

When earnings are taken out before age 59-and-a-half, an additional early‑distribution penalty can also apply. Roth IRAs are not subject to required minimum distributions during the original owner’s lifetime, according to the Internal Revenue Service (IRS).

Dave Ramsey clarifies 2026 IRA contribution limits, eligibility

Ramsey notes that there are limits to the amount one can contribute annually to both traditional IRAs and Roth IRAs.

“For 2026, the limit is $7,500 ($8,600 if you’re age 50 or older by the end of the year),” Ramsey wrote.

There are also rules about eligibility and income.

“Traditional IRAs have no annual income limits — anyone with an income can open and contribute to a traditional IRA,” Ramsey wrote. “And in 2026, you can contribute to a Roth IRA up to the limit if your income is less than $153,000 for single filers and $242,000 for married couples filing jointly.”

Ramsey recommends Roth IRAs, 401(k)s

Once a person is debt-free and has a full emergency fund ready to deal with unexpected financial difficulties, Ramsey suggests they begin investing 15% of their income.

“Start with your 401(k) or workplace retirement plan and invest up to the match,” he wrote. “(If your plan doesn’t match, start investing in your Roth IRA first.)”

“Next, open a Roth IRA and max it out (or invest up to your 15% goal, whichever comes first),” Ramsey added. “If you max out your Roth IRA and haven’t reached your 15% yet, go back to your 401(k) and bump up your contributions until you reach your 15% goal.”

More on personal finance:

AARP raises red flag on major 401(k) problemRedfin predicts key housing market shift for homebuyersFidelity sounds alarm on 401(k)s, IRAs, Social Security

Above all retirement savings accounts, Ramsey places the most value in Roth IRAs.

“Both traditional and Roth IRAs are good options for your retirement investing, but at the end of the day, the Roth IRA simply can’t be beat when it comes to building wealth and saving for your retirement dreams,” Ramsey wrote.

“Tax-free growth and tax-free withdrawals in retirement are perks of a Roth IRA worth the sting of a heftier tax bill this year.”

Dave Ramsey and Charles Schwab address Americans’ concerns about retirement savings accounts.

Lester Balajadia/Shutterstock

Schwab discusses additional Roth IRA benefit

Schwab makes another key point about Roth IRAs.

“Should your tax rate increase in the future or when you retire, contributing to a Roth IRA can help you diversify your savings by tax treatment,” Schwab wrote.

“This can provide a hedge — or protection against — for changes in tax law and the potential for higher future tax rates sometime down the road,” Schwab continued.

Account rollovers offer another major consideration.

“If you change jobs, you can convert a traditional 401(k) directly into a Roth IRA without having to roll it into a traditional IRA first,” Schwab wrote.

“Just remember, you must pay federal income tax on the full amount in the year of the rollover.”

Related: Vanguard, IRS send critical message on 401(k)s, IRAs

#Dave #Ramsey #Charles #Schwab #raise #red #flag #IRAs #Roth #IRAs