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Traditional (Pre-Tax) vs. Roth 401(k)

By: Blake Will

One of the questions we get asked most often by our clients is should they be contributing to the traditional 401(k) or should they elect to use the Roth 401(k) option.  While most of our clients are in the highest tax brackets, it is very easy to look at the tax rate you are paying today and decide that traditional is the way to go.  It is the easier answer and may feel the best right now.  Nobody wants to pay more tax today.  While there are many instances where pre-tax is the answer, we believe there are many more items that factor into the decision, such as:

  • Future tax rate risk 
  • Long term charitable giving goals
  • Income needs in retirement
  • Required minimum distributions (RMD)
  • Potential future beneficiaries tax situation
  • Ability to convert from pre-tax to Roth before RMD age

Depending on your specific situation, many of these items come into play in addition to the current tax rates.  At the end of the day, pre-tax may still be the answer for you right now, but we would love to challenge the thought process and help you ensure you are making the best decision for you and your family.  We are all about lowering your taxes overall, and sometimes that means paying more today for that future benefit!  Give us a call if you would like to discuss your plan more in depth!

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