Roth vs. Pretax

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Roth vs. Pretax

00:00:07
Hi and welcome to Cornerstone clips. Today, we’re going to be talking about retirement plan contributions, retirement plan contributions, come in two forms, pretax and Roth. So, let’s break each one down for the advantages and disadvantages.
00:00:20
Starting with pretax pretax contributions are done before taxes are deducted from your income, so you’re getting it tax help today and deferring your tax liability to a future date. Full 20-year withdrawals from pretax contributions will be fully taxed when you take them out in retirement.
00:00:38
This can be advantageous to you if you’re in a high tax bracket. Currently and or or believe you will be in a lower tax bracket in the future. Therefore, taking your tax help today at A at a higher rate and deferring it to a future date at a lower rate, next steps Roth contributions. They’re done on an after-tax basis.
00:00:58
Meaning you earn your income, pay taxes on it, then defer it into the retirement plan. This gives you your tax help in the future as all contributions and growth come out completely tax free in retirement. So, if you believe you’ll be in a higher tax bracket in the future, this is probably a better way for.
00:01:16
You to go the other advantage to Roth is they’re generally not subject to required minimum distributions as the taxes have already been paid, so the IRS is not looking for the extra tax out. This can be a complicated decision as generally speaking both options are available inside retirement plans. We’d love to sit down with you and help you figure out which one makes the most sense for you. So, give us a call here at Cornerstone, we’d be happy to chat about it.