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Roth Vs Pre-tax Retirement Savings

April 12, 2024

Roth Accounts (ROTH IRA and ROTH 401k)


  • Tax-free withdrawals in retirement: Qualified withdrawals in retirement are tax-free and penalty-free, if you're at least 59 ½ and and the account has been open for at least five years. 
  • Tax-free growth: Earnings on your contributions also grow tax-free. This can significantly accelerate the growth of your retirement savings.


  • No upfront tax deduction: You don't get an immediate tax break for contributions to a Roth account. 
  • Income limits for Roth IRA contributions: There are income limits on who can contribute directly to a Roth IRA and so this option is not available for all investors.

Pre-Tax Accounts (Traditional IRA or regular 401(k))


  • Tax-deductible contributions: Contributions to a traditional account reduce your taxable income for the year, lowering your current tax bill. 
  • Tax-deferred growth: Earnings on your contributions grow tax-deferred. You don't pay taxes on the money in your account until you withdraw it in retirement.


  • Taxed withdrawals in retirement: Withdrawals from traditional accounts are taxed as ordinary income in retirement. 
  • Required minimum distributions (RMDs): Starting at age 72, you must start taking required minimum distributions (RMDs) from your traditional IRA or 40(k), even if you don't need the money. 

Choosing the right account for you

The best type of retirement account for you depends on your individual circumstances. Here are some things to consider:

  • Your current tax bracket: If you're in a high tax bracket now, you may benefit more from the tax deduction of a traditional account. If you're in a low tax bracket now, a Roth account may be a better option.
  • Your expected tax bracket in retirement: If you expect to be in a lower tax bracket in retirement, a Roth account may be a better option.
  • Your income: If your income is too high to contribute directly to a Roth IRA, you may want to consider a traditional IRA or a Roth 401(k), if your employer offers one

**Since future tax rates are unknown, a combination of Pre-Tax and Roth tends to be a good strategy to give you a present-day benefit, while also protecting you from higher interest rates in the future. 

There is no one size fits all strategy, and so a financial plan can aid you in deciding where you contributions are best suited.