At Hill Investment Group, we recognize that when a few clients raise the same question, it’s likely that more have similar thoughts. To better serve you, we’re introducing a new segment in our newsletter where we’ll address common questions and how we approach them. To submit questions for future newsletters, email us at info@hillinvestmentgroup.com.

Hey Hill, Is a Pre-Tax or Roth 401(k) Right for Me?

Picture this: you’ve just landed a new job, and you’re ready to dive into your benefits package. You’re at the 401(k) enrollment screen, wondering: “Pre-tax or Roth contributions—which one’s the better long-term choice?” Many of our clients face this same question, and the answer often depends on your financial goals. Here’s a quick breakdown to help you make an informed choice.  

Pre-Tax vs. Roth: What’s the Difference?

Think of it like shopping with a choice between a discount today or tax-free shopping later.  

• Pre-tax contributions lower your taxable income now, saving you on taxes this year. But you’ll owe taxes on those funds, plus any growth when you withdraw in retirement.
• Roth contributions are taxed upfront, giving you the benefit of tax-free growth and tax-free withdrawals in retirement.

How This Can Look in Dollars:

If you’re in the 24% tax bracket, contributing $10,000 pre-tax saves you $2,400 this year. With Roth, you pay that tax now but enjoy tax-free withdrawals on both the initial amount and any growth in the future.

Key Factors to Consider:

• Current vs. Future Tax Bracket: Are you early in your career and expecting your income to grow? Roth might make sense, letting you lock in today’s lower tax rate. But if you’re in a high-earning phase and expect a lower tax bracket in retirement, pre-tax could be more advantageous.

• Time Horizon:  The longer you have until retirement, the more valuable Roth’s tax-free growth can be. Younger savers often benefit from decades of compounding without a tax hit.

• Employer Match: Don’t forget that any employer match is usually pre-tax, giving you a mix of both types, regardless of your choice.

Need Help Deciding? 

This choice doesn’t have to be overwhelming. If you want help deciding between pre-tax and Roth contributions—or figuring out how much to save and where to invest—reach out. We’re here to help you get clear on what makes sense for your financial future.

Hill Investment Group is a registered investment adviser. Registration of an Investment Advisor does not imply any level of skill or training.  This information is educational and does not intend to make an offer for the sale of any specific securities, investments, or strategies. Consult with a qualified financial adviser before implementing any investment or financial planning strategy.