Dave Ramsey sends major message to Americans on 401(k)s, IRAs todayheadline

As household budgets continue to feel squeezed, many Americans find it harder to juggle everyday expenses with long-term financial goals.

Rising grocery store and gas pump costs are forcing tough choices, and for many, retirement savings are slipping down the priority list.

Popular personal finance author and podcaster Dave Ramsey shares key ideas about how 401(k)s and Individual Retirement Accounts (IRAs) are useful tools workers can use to help relieve their sense of nervousness about the future. 

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This growing anxiety is compounded by uncertainty in the stock market that leaves investors questioning whether their portfolios are truly prepared to support them in their later years.

In addition to that, there are looming concerns about Social Security. Projections suggest its trust funds may be depleted by 2034, potentially slashing benefits to only about 80% of what retirees currently expect.

Health care costs are another major stressor. Even with Medicare, premiums and out-of-pocket expenses can add up quickly, making it difficult for retirees to feel financially secure.

In light of these challenges, Ramsey offers his views on 401(k)s, IRAs and how they compare to Roth 401(k)s and Roth IRAs.

Related: Dave Ramsey warns Americans on Social Security

Dave Ramsey explains 401(k)s and IRAs

Ramsey emphasizes the fact that many workers are not saving or investing enough for retirement — and that this shortfall stems from entrenched habits. 

The only way to break these patterns is to take deliberate action and make meaningful changes to how one manages their money today, he says, and a great place to start is with 401(k) plans and IRAs.

A 401(k) is a retirement savings program offered through an employer. It enables workers to automatically set aside a portion of their earnings for retirement, with contributions conveniently deducted from their paychecks. 

And many 401(k) plans feature matching contributions from the employer, essentially offering free money to invest in retirement savings.

The amount individuals can contribute to their 401(k) plans in 2025 has increased to $23,500, up from $23,000 for 2024, according to the IRS.

An IRA is a type of savings account designed to help workers prepare for retirement while offering valuable tax benefits. 

Depending on the type of IRA, a person can either reduce their taxable income now and let their investments grow tax-deferred, or enjoy tax-free growth and withdrawals later when they retire.

The limit on annual contributions to an IRA remains $7,000. The catch-up contribution limit for employees aged 50 and over remains $7,500.

Dave Ramsey clarifies traditional 401(k)s vs. Roth 401(k)s

Ramsey explains that when one contributes to a traditional 401(k), they are getting a tax benefit up front. The money goes in before taxes, which lowers taxable income for the year and reduces what is owed to the IRS. 

It’s a solid deal for now, Ramsey writes — but when one retires, they will pay taxes on everything: their contributions, the employer’s match, and any investment gains.

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A Roth 401(k) works differently. An individual contributes after-tax dollars, so there is no immediate tax break. 

But the payoff comes later — one’s money grows tax-free, and they will not owe anything when they withdraw it in retirement. 

“Both types of tax advantages are great, but if your employer offers a Roth 401(k), we always recommend taking that option,” Ramsey wrote. “Allowing your money to grow tax-free for decades and then not having to worry about taxes when you’re living out your retirement dreams? Sign us up!”

Related: Dave Ramsey has blunt words for Americans on Medicare, Medicaid

Dave Ramsey discusses traditional IRAs vs. Roth IRAs

Ramsey emphasizes the fact that traditional IRAs offer a tax break up front — an individual contributes with pretax dollars, which can lower taxable income and reduce their tax bill for the year. 

However, because they didn’t pay taxes going in, they will owe taxes later when when they withdraw the money in retirement, including any growth. 

Traditional IRAs are open to anyone with taxable income, regardless of how much they earn, and they can contribute the full amount. But starting at age 73, people are required to begin taking withdrawals — called required minimum distributions — because the government wants its share eventually.

Roth IRAs use a different plan. A person contributes after-tax dollars, meaning they have already paid taxes on the money. 

The benefit? Investments grow tax-free, and people can withdraw them tax-free in retirement. 

In 2025, one can contribute to a Roth IRA if their income is below $153,000 as a single filer, or $241,000 for married couples filing jointly. 

If one earns more than that, Ramsey suggests using a backdoor Roth IRA strategy to still take advantage of its long-term benefits.

Related: Tony Robbins sends warning message to Americans on IRAs, 401(k)s