Question 5
“A core decision when choosing between Roth and Traditional contributions is whether you prefer the tax benefit now or later. Traditional (pre-tax) contributions reduce taxable income today but are taxed on withdrawal in retirement. Roth contributions are made with after-tax dollars but qualified distributions are tax-free. A practical rule of thumb used in basic education is to consider your expected tax bracket now versus in retirement: if you expect a lower tax rate later, Traditional may offer a larger lifetime tax benefit; if you expect a higher or similar rate later, Roth could be preferable. This question frames that trade-off simply — it’s not tax advice, but an illustration of the underlying tax-timing idea.”
If you expect your tax rate in retirement to be lower than today, which contribution type generally favors paying less tax over time?
Did You Also Know...
By Wise Wallet
Trying to time the market is difficult; historically, consistently staying invested has outperformed frequent market timing attempts.