Broker Check
401(k): Roth vs Pre-Tax or Blended?

401(k): Roth vs Pre-Tax or Blended?

February 14, 2023


Maximizing Retirement Savings: Traditional vs. Roth 401(k) - Which is Right for You?

As we navigate through today’s ever-changing financial landscape, making the right decisions for our retirement savings has become increasingly challenging. With unpredictable tax rates and the need to plan for the future, choosing between a traditional and Roth 401(k) has become a topic of great importance. However, there is a strategy that can help you hedge your bets and maximize your retirement savings - utilizing both options.

  1. The Two-Account Approach: A Winning Strategy

By diversifying your retirement savings across both a traditional pre-tax account and a Roth account, you can create a flexible and balanced portfolio that adapts to future tax rate changes. This approach allows you to take advantage of potential tax benefits, regardless of whether tax rates rise or fall by the time you retire.

  • With a traditional 401(k), contributions are made with pre-tax dollars, reducing your taxable income in the present. This can provide immediate tax savings and potentially place you in a lower tax bracket.
  • On the other hand, a Roth 401(k) allows you to contribute after-tax dollars, meaning you won’t receive any immediate tax benefits. However, the growth and withdrawals from your Roth account are tax-free in retirement, providing a valuable source of tax-free income.
  1. Managing Tax Bracket Creep

One of the significant advantages of having access to tax-free distributions in retirement, such as those provided by a Roth account, is the ability to manage tax bracket creep. Tax bracket creep occurs when inflation pushes your income into higher tax brackets over time. By having a Roth account, you can withdraw tax-free funds, potentially reducing the impact of tax bracket creep and preserving more of your hard-earned savings.

  1. The Growing Popularity of the Two-Account Approach

While the two-account approach offers undeniable advantages, it’s essential to note that not all 401(k) sponsors currently offer a Roth option. However, as more individuals recognize the benefits of this strategy, the popularity of the Roth 401(k) is expected to continue rising. As a business owner, this presents a unique opportunity for you to stand out from the competition by adding a Roth option to your employee benefits package.

  1. Seamless Implementation with Skilled Guidance

Implementing a Roth option in your 401(k) plan may seem daunting, but with the right guidance, it can be a straightforward process. As a financial advisor in Houston, Texas specializing in business benefits packages, estate planning, and investment portfolios, I can provide you and your team with comprehensive advice and support. My team ensures a seamless implementation process, guiding you through all aspects of your 401(k) plan and helping you upgrade your benefits package with a Roth option.

Business Owners: 

This presents a great opportunity for you to rise above the competition by adding a Roth option to your employee benefits package. It's really not that difficult to implement. My team ensures the process is seamless; we advise you and your team on all aspects of your 401(k) plan. Adding a Roth option to your plan can be an excellent upgrade to your benefits package.


About the Author:

Damon Paull is a Marine Corps veteran who has traveled to over 20 countries. As a financial advisor in Houston, Texas, he is passionate about helping business owners and individuals pursue their financial goals. You can connect with Damon and his team at: 703.362.5747 or DPaull@totuswm.com.