What You Need to Know
- The author posed a common question.
- AI gave a pretty good answer.
- It added important disclaimers.
As generative AI continues to be a resource for getting quick answers to questions, it’s likely that some clients are leveraging the tool for financial advice.
Generative AI, such as ChatGPT, can provide a broad understanding of investing, helping clients feel more comfortable discussing their options during meetings with their advisors.
However, on its own, generative AI is not a credible source of financial advice or information.
AI chatbots are not capable of replicating the quality of service and personalization advisors offer, making it more of a supplementary tool than a threat.
The financial advice provided by generative AI is an opportunity for advisors to showcase their value by going above and beyond the advice of AI.
To gauge the quality of ChatGPT’s counsel, I prompted it to act as a financial advisor and provide feedback geared toward consumers. The advice offered, while fairly general, stands as a good starting point for consumers seeking real-time responses.
QUESTION: Should I invest into a regular 401(k) or Roth 401(k)?
CHATGPT: The decision between a regular 401(k) and a Roth 401(k) depends on your current financial situation, future expectations, and personal preferences.
Here are some key considerations for each:
Regular 401(k):
Tax Deductions: Contributions to a regular 401(k) are made with pre-tax dollars, which means they can reduce your taxable income for the year in which you contribute. This can lead to immediate tax savings.
Tax-Deferred Growth: Your contributions and their earnings grow tax-deferred until you withdraw the money in retirement. You’ll pay taxes on withdrawals as ordinary income when you take distributions.
Income Considerations: If you expect to be in a lower tax bracket during retirement, a regular 401(k) may be advantageous, as you would potentially pay less in taxes when you withdraw the funds.
Roth 401(k):
Tax-Free Withdrawals: Contributions to a Roth 401(k) are made with after-tax dollars, so you don’t get an immediate tax deduction. However, qualified withdrawals (contributions and earnings) are tax-free in retirement.