Stop Letting Money Sit in Checking, Jean Chatzky Warns: The Roth IRA Edge Over Traditional Accounts

On a recent episode of HerMoney with Jean Chatzky, a listener named Nicole, who earns $115,000 a year, admitted she had stumbled into a problem most Americans would envy. After tracking her spending, she told Chatzky: "I had a month or two where I wasn’t really buying a lot of extra nonsense or traveling anywhere. And when I saw the number last month, I was like, wow, I could really be doing something with this money and I’m just not doing anything."

Chatzky’s response cut straight to the strategy. The Roth IRA, she said, is "a gift from the government, if not from the gods." The math behind that line is worth understanding before you park another surplus paycheck in checking.

The verdict: fund the Roth before the annuity, every time

Nicole was weighing Roth IRAs against annuities. Chatzky steered her toward the Roth first, with the option to buy an annuity later. That is the correct order because of tax diversification: retirement income drawn from different tax buckets gives you control over your future tax bill.

Most workers building retirement savings through a 401(k) do it on a pre-tax basis. Every dollar that comes out in retirement is taxed as ordinary income. A Roth IRA flips that: you contribute after-tax dollars today, and every dollar of growth and withdrawal in retirement comes out tax-free. As Chatzky put it, "Maximizing our ability to sort of balance out 401(k)s and other traditional retirement accounts with Roth accounts gives us choices in retirement about where we’re going to pull money from."

Here is the concrete math for someone in Nicole’s position. The 2026 Roth IRA contribution limit is $7,000 for savers under 50. At a single filer income of $115,000, she is below the phase-out range and can contribute the full amount.

Contribute $7,000 a year into a Roth IRA for 25 years at a reasonable average annual return, and the ending balance is well into the six figures, every dollar of it withdrawable tax-free after age 59½. Run the same contribution into a taxable brokerage account, and annual dividend and capital gains taxes shave tens of thousands off the ending balance. The Roth’s edge is the absence of tax friction compounding for decades.

Inflation makes this urgent. The Fed’s preferred gauge, core PCE, has climbed from 125.79 to 129.28 over the past 12 months, sitting in the 90.9th percentile of its recent range. Cash sitting in checking loses purchasing power every month.

The variable that flips the answer: your tax rate now vs. later

The one factor that determines whether a Roth beats a traditional contribution is the gap between your tax bracket today and your bracket in retirement. Roth wins when your future rate is the same or higher. Traditional wins when your future rate is meaningfully lower.

At $115,000 of income, Nicole sits in the 22% federal bracket as a single filer. If she expects similar or higher rates in retirement, perhaps because of a paid-off house, no mortgage interest deduction, and Social Security plus 401(k) withdrawals stacking on top of each other, the Roth is the clear pick. If she expected to retire in a 12% bracket with very little other taxable income, a traditional contribution would arguably win on pure math.

With the fed funds upper bound near 4% and the 10-year Treasury around 4.6%, cash and bonds finally pay something. That makes the tax shield inside a Roth more valuable. Every coupon you’d otherwise pay tax on each year compounds untouched.

What to do with the surplus this month

Nicole’s modified Dave Ramsey system uses separate debit cards for household bills, $200 per pay period for entertainment, and $100 per pay period for groceries. Add a fourth bucket: an automated transfer to a Roth IRA on payday.

1. Open the account before the next pay cycle. Any major brokerage will let you fund a Roth IRA in under 20 minutes. The 2026 contribution deadline runs through Tax Day 2027, but waiting wastes compounding time.
2. Automate a per-paycheck transfer. Split the $7,000 annual cap across pay periods so the contribution lands before lifestyle inflation absorbs it. The national savings rate has fallen from 6.2% in early 2024 to 4% today. Automation is the only reliable defense against that drift.
3. Pick a default investment. A low-cost total-market or target-date index fund inside the Roth is enough. The tax wrapper does more work than fund selection at this stage.
4. Revisit annuities later, if at all. Chatzky’s sequencing is right: lock in Roth space while you qualify, then consider an annuity in your 50s or 60s if you want guaranteed income on top of Social Security.

Nicole’s surplus is the rarest thing in personal finance: money that has not yet been assigned a job. Give it one before the checking-account balance does.