Broker Check

To Roth or Not to Roth?

May 02, 2024

          If you're making payroll deducted contributions to a retirement plan, such as a 401k or 403b, you may be able to elect whether you want some of that to be invested in a Roth. Normally a traditional contribution will reduce your taxable income for that year. However, a Roth contribution will not. As the Roth account grows, assuming you wait until age 59 1/2 or older and you have had it for more than 5 years, the future distributions are completely tax free. 

          When analyzing a retirement plan, my general thought is, if a client has more than $94,301 (married filing jointly) or $47,151 (filing single) of taxable income, the amount over that threshold is being taxed at a 22% rate. This is referred to as the marginal tax bracket. Many retirees fall below the 22% tax rate since some of their social security is tax free and many times debts have been paid off so their need for income is less. 

          So back to the question.... To Roth or Not to Roth. If your income is subject to the 22% tax rate, I would suggest you increase your traditional, tax deductible retirement plan contributions to the point that you reduce your income under that threshold and if you can contribute more, than paying a 12% tax rate, but investing that portion in the Roth makes a lot of sense to me. If you're thinking about whether you should do a Roth or not, but want some help figuring it out, give us a call. 386-299-2893.