Georgijevic | E+ | Getty Images
The start of the year is the perfect time to review your retirement savings, including pre-tax versus Roth 401(k) contributions.
Roughly 86% of 401(k) plans offered a Roth account in 2020, up from 75% in 2019, according to the Plan Sponsor Council of America.
While pre-tax deposits offer a write-off and tax-deferred growth, after-tax Roth contributions may grow levy-free. But there’s more to consider than future brackets, financial experts say.
More from Personal Finance:
Retirees need to keep this much cash, advisors say
This company just decided to give employees a 4-day workweek permanently
Don’t count on that tax refund yet. Why it may be smaller this year
“In general, the goal is to take deductions at a higher tax rate and distributions at a lower one,” said certified financial planner Ken Waltzer, co-founder and managing partner of KCS Wealth Advisory in Los Angeles.
If you plan on more income or higher taxes in retirement, tax-free withdrawals from Roth contributions may make sense, and tax-deferred contributions may be better if you expect lower earnings and levies.
But that’s not always a winning strategy, according to Michelle Gessner, a Houston-based CFP and founder of Gessner Wealth Strategies.
“Investors are quick to discard the idea of making Roth contributions if they are in a high tax bracket because they want the deduction that comes with a regular 401(k) contribution,” she said.
However, the…
