Rethinking Retirement: Roth vs. Traditional and Strategic Tax Moves
By Zander DiMare, Aslan Wealth Partners
Published in Longmeadow Neighbors August 2025
When considering your tax strategy, many discussions encourage contributing to traditional 401(k)s and IRAs for an immediate tax deduction. However, this approach might be shortsighted. Given the current U.S. debt levels, it may be worth considering the long-term implications of tax-deferred accounts. What seems like a tax deduction is actually a tax deferral, simply pushing the tax burden to the future.
Instead, especially if you anticipate having a large retirement account, you should explore Roth 401(k)s and Roth IRAs. While these don’t offer an upfront tax break, your qualified withdrawals in retirement are entirely tax-free. This could be a significant advantage, particularly when you consider the potential for higher tax rates down the road.
Moreover, your taxable income in retirement can have a significant impact on other areas of your financial life. For instance, up to 85% of your Social Security benefits can become taxable depending on your overall income. Similarly, your Medicare Part B and Part D premiums are based on your taxable income (specifically, your Modified Adjusted Gross Income or MAGI), meaning higher income can lead to substantially higher premiums through the Income-Related Monthly Adjustment Amount (IRMAA). By strategically managing your taxable income with Roth accounts, you can potentially reduce these future costs.
The “Ticking Tax Time Bomb” of Traditional Accounts
The rules around inherited IRAs and 401(k)s have changed. What was once a “stretch IRA” that could spread distributions over many decades is now limited to a 10-year payout window after the original owner's death. This means all the growth and accumulation in these accounts must be withdrawn and taxed within a much shorter timeframe, potentially leading to a substantial tax bill for beneficiaries. Shifting to Roth vehicles may help you avoid this “ticking tax time bomb.”
Strategic Roth Conversions
Roth conversions can be a powerful tax planning tool, especially when the stock market is down. Converting traditional IRA or 401(k) assets to a Roth where values are depressed may allow you to pay taxes on a lower amount. This could essentially give a “tax gift” to your future self, as all future growth in the Roth account will be tax-free. Furthermore, reducing your traditional account balances through conversions can help manage your taxable income in retirement, potentially lowering the taxability of Social Security and mitigating higher Medicare premiums.
Estate Tax and SALT Deductions
Currently, estate tax thresholds are set at approximately $14 million per person, or $28 million for a married couple. This provides relief for individuals whose estates are valued around $5 million. The current thresholds may alleviate what would otherwise be a more significant financial concern.
Important Note: The strategies discussed here are general in nature. Consult a qualified tax professional for personalized advice tailored to your specific financial situation.
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