#SPECIAL PRE TAX MONIES CROSSWORD FREE#

Roth contributions are undoubtedly a beneficial piece of that plan.Īside from the compelling tax reasons Roth is so attractive, Brittany summarizes the other key benefits which make the Roth bucket so valuable in an investor’s long-term plan:

In a prior blog, Brittany touched on the importance of a long-term diversified savings plan.

#SPECIAL PRE TAX MONIES CROSSWORD FREE#

This option can be compelling because it not only allows investors to free up cash flow to save at a higher level but also because the growth is tax-deferred, avoiding taxes from impacting growth until you start to take money out. The money then grows tax-deferred, which means you don’t pay any tax until withdrawing the funds. There are opportunities to fund into this bucket through two primary vehicles: Roth IRAs or Roth 401(k)s.Ĭonversely, pre-tax savings is when you fund money into a traditional IRA or 401(k), and in general, you get a tax deduction in the year of contribution. Simplified, you invest the dollars and allow them to compound tax-free over a long period of time while never paying tax on the growth. The Roth bucket is more expensive on the front end, but the long-term benefit of tax-free growth is hard to beat. When withdrawing the funds, presumably in retirement, you don’t pay a dime in income taxes on qualified withdrawals. These funds then grow completely tax-free at the account’s rate of return. Looking at Roth, money is funded into the Roth bucket on an after-tax basis or simply after the money has already been taxed. The biggest difference between a Roth savings environment and the traditional, pre-tax savings environment is how contributions and withdrawals are taxed. Let’s do a quick review of the pre-tax and Roth buckets. “Taking advantage of the Roth bucket can be very appealing when looking at the long-term, especially when you can afford to take the tax hit up front.”īut a heavy weight toward Roth is not such a “slam dunk” for all investors. “When the goal is to compound savings to increase long-term growth, getting more money into tax-advantaged environments is the most effective way to do this,” CPA Brittany Frazier says. It’s likely most are already doing the basics like 401(k), traditional IRAs, Roth IRAs, and so on, but successful investors should periodically evaluate their tax savings plan and ensure it is still applicable to their personal and business goals. Investors must redistribute fully taxable income into the most tax-efficient environment possible, allowing them to save more and pay less to the government. A strategic tax plan is one of the most important steps toward accumulating wealth, and it is something our financial planners spend a lot of time on with their clients.

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