Roth (IRA/401k) > Pre-Tax accounts?

In this video, Ben discusses the considerations physicians should make when choosing between pre-tax and after-tax retirement accounts like traditional 401(k)s and Roth IRAs.

Key Highlights

• Pre-Tax Contributions: Ben explains how contributing to a traditional 401(k) or SEP IRA reduces taxable income in the current year. For instance, contributing $20,000 reduces a $500,000 income to $480,000, saving about $6,000 in taxes annually at a 30% tax rate. However, the downside is that the money, along with its growth, is taxed as ordinary income upon withdrawal in retirement.
• After-Tax Contributions: In contrast, using a Roth 401(k) or Roth IRA means no tax break today; you pay taxes on the full income ($500,000). The benefit is that withdrawals in retirement are entirely tax-free.
• Diversification & Strategy: Ben also emphasizes the importance of diversification. Having both pre-tax and after-tax accounts provides flexibility in retirement, allowing you to pull from either bucket depending on the tax environment at that time.