$ ?s: Roth or Pre-Tax 401(k)?

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Money QuestionsQ: I have two savings options through my employer retirement plan, traditional pre-tax or Roth 401(k). Which do you recommend?


Taxmenow Or Later

$ ?s answered by Matthew Illian, CFP®


Dear Mr. Later,

Many employers do not include the Roth option in their 401(k), so you are fortunate. I have created some simple rules to help you make this decision.

You are a good candidate for a Roth if:

  • You’re young and earning less than you will be in the future.


  • You’re a “supersaver” or you benefit from generous employer retirement contributions and will have a large nest egg in retirement.*


  • You expect to inherit a family business or some other taxable investment interest that will increase your retirement earnings.


  • After reviewing the U.S. government’s debts and historically low tax rates, you expect tax rates to rise in the future and you are willing to pay now for tax-free income in the future.

*This applies if you have at least 12% (combining employer and employee contributions) of your salary automatically deposited into retirement plans annually.

You’re a good candidate for a traditional pre-tax savings if:

  • You are at or near your highest earning capacity.


  • You have limited retirement savings and expect your income to drop in retirement.

The general goal is to pay tax when you are at the lowest rates. Some people also try to analyze growth rates, but this has no bearing on the decision. Here is the only question you should attempt to answer: Are you paying a higher rate now or later? 

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Former Contributor

Matthew Illian was a Wealth Manager at Marotta Wealth Management from 2007 to 2016. He specialized in small business consulting, college planning, and retirement plans.