The Great Retirement Debate: Pre-Tax or Roth?

Think Roth is always better? Think again!

One of the biggest financial questions people wrestle with is:

👉 Should I put my money into a traditional (pre-tax) account, or a Roth account?

If you’re still saving for retirement, this decision affects where each dollar goes today.

If you’re nearing retirement, it affects how (and when) you take money out.

Either way, the Roth vs. pre-tax debate is one of the most important choices you’ll make, and it’s not as simple as “pick one and stick with it.”

Roth vs. Pre-Tax: The Basics

• Pre-Tax (Traditional 401(k)/IRA):
  You contribute before paying taxes. This lowers your taxable income today, but every dollar you withdraw in retirement is fully taxable.

• Roth (Roth 401(k)/IRA):
  You contribute after paying taxes. There’s no upfront deduction, but qualified withdrawals in retirement are tax-free.

So the real question becomes: Do you want to pay taxes now, or later?

If You’re Still Saving

Why Pre-Tax Might Make Sense

• Reduces taxable income today (biggest benefit if you’re in a high tax bracket).

• May help you avoid crossing into higher tax brackets or triggering things like Medicare IRMAA later.

• Lets you invest the tax savings elsewhere now.

Why Roth Might Make Sense

• Allows you to lock in today’s tax rates, especially if you’re early in your career or expect higher taxes later.

• Creates tax-free income in retirement, giving flexibility when you need it most.

• No RMDs on Roth IRAs, so your money can grow longer without forced withdrawals.

If You’re Nearing or In Retirement

The debate shifts from “where to contribute” to “how to withdraw.”

• If most of your savings are in pre-tax accounts, required minimum distributions (RMDs) could push you into higher tax brackets down the road.

• Roth conversions, which involve strategically moving money from pre-tax to Roth in lower-income years, can help smooth out your lifetime tax bill.

• Having both Roth and pre-tax accounts gives you “tax flexibility” in retirement. For example, if you want to keep your taxable income lower in a given year, you might draw more from Roth. In another year, pre-tax withdrawals could make more sense.

Why Rules of Thumb Don’t Work

Some people tend to say:

“Always do Roth when you’re young.” or,

“Always do pre-tax if you’re a high-income earner.”

But that’s really only the beginning of this great debate.

What really matters is your unique tax situation today vs. what it might be in retirement.

Examples:

• A 40-year-old high earner might lean pre-tax today but plan for Roth conversions in early retirement years before RMDs begin.

• A couple retiring at 62 may want Roth withdrawals early to keep taxable income low for healthcare subsidies before Medicare kicks in.

The Best of Both Worlds

Here’s the part most people overlook: you don’t have to choose one side forever.

In fact, many people benefit from having both Roth and Pre-Tax dollars. This “tax diversification” means you can pull from whichever account makes the most sense, depending on your retirement income, tax bracket, and future goals.

What’s Right For “You”?

The Roth vs. Pre-Tax debate isn’t about finding the “right” answer for everyone. It’s about finding the right balance for you.

• If you’re still saving, the choice affects your current tax bill and how much grows for later.

• If you’re nearing retirement, it’s about withdrawals, conversions, and managing taxes across your retirement years.

Either way, a financial plan can help you run the numbers, weigh the trade-offs, and build a strategy that gives you financial flexibility in retirement.

Have any questions about what you’ve read? Let’s talk about them!

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