5 Reasons To Consider a Roth 401k Over a Pre-Tax 401k

One checkbox in your 401(k) can quietly decide how much control you’ll have over taxes for the rest of your life. We sit down and get specific about why a Roth 401(k) deserves a serious look next to the traditional pre-tax 401(k), especially for people living in the wide middle of the tax brackets who are trying to build a smarter retirement plan instead of just following office folklore.

We walk through five core reasons we see again and again with real families: the risk of higher future tax rates, how Roth dollars can help you manage Social Security taxation, and how controlling modified adjusted gross income can keep Medicare Part B premiums from jumping due to IRMAA. Along the way, we share adoption stats that surprised us: most employers now offer a Roth 401(k), yet only a small slice of participants actually use it, often because they don’t realize the option exists.

We also talk about required minimum distributions and why rule changes matter, then zoom out to the part many people ignore until it’s too late: legacy planning. If you leave a large pre-tax account behind, your kids may inherit a tax problem under the 10-year rule. Roth assets can change that outcome by shifting the burden away from taxes and toward cleaner planning.

If you want a clear, real-world take on Roth 401(k) vs traditional 401(k), tax diversification, retirement income strategy, and protecting your heirs, hit play. Then subscribe, share this with a friend who’s “just doing the match,” and leave a review so more people can find the Financial Huddle.

Roth 401k offerings: 
https://www.psca.org/news/psca-news/2025/12/roth-option-offerings-continue-to-grow/

https://www.psca.org/news/psca-news/2025/11/psca-annual-survey-participation-climbs-as-employers-embrace-secure-2.0-flexibility

Roth 401k participation: 
https://about.fidelity.com/data-and-insights/q3-2025-retirement-analysis

https://www.cnbc.com/2025/12/08/roth-401k-contributions.html

Inherited IRA spend-down rules: 
https://www.tiaa.org/public/invest/services/wealth-management/perspectives/inheritinganira

Historical Tax Brackets: 
https://taxfoundation.org/data/all/federal/historical-income-tax-rates-brackets/

Social Security & Medicare Trust Fund: https://www.ssa.gov/news/en/press/releases/2025-06-18.html

Tax Revenues by Country: 
https://data-explorer.oecd.org/vis?fs[0]=Topic%2C1%7CTaxation%23TAX%23%7CGlobal%20tax%20revenues%23TAX_GTR%23&pg=0&fc=Topic&bp=true&snb=150&df[ds]=dsDisseminateFinalDMZ&df[id]=DSD_REV_COMP_GLOBAL%40DF_RSGLOBAL&df[ag]=OECD.CTP.TPS&dq=..S13._T..PT_B1GQ.A&lom=LASTNPERIODS&lo=10&to[TIME_PERIOD]=false&vw=tb

Gross National Debt by Country: https://www.imf.org/external/datamapper/CG_DEBT_GDP@GDD/CHN/FRA/DEU/ITA/JPN/GBR/USA

Clarification: 
According to OECD tax revenue data and IMF/Eurostat debt statistics, European countries with tax-to-GDP ratios below the United States (such as Ireland and Switzerland) have substantially lower debt levels, while countries with debt levels comparable to or exceeding the United States (such as Greece and Italy) have significantly higher tax-to-GDP ratios. No major European economy satisfies both conditions simultaneously.

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Disclosure: Information contained in this podcast is for entertainment and informational purposes only, and should not be considered as financial advice. Financial Planning and Advisory Services are offered through Prosperity Capital Advisors (“PCA”), an SEC registered investment adviser.  Registration as an investment adviser does not imply a certain level of skill or training. Keystone Financial Group and PCA are separate, non- affiliated entities. PCA does not provide tax or legal advice. 

Transcript

Disclaimer And Welcome

Announcer 0:00

The financial huddle does not provide tax, legal, financial, or other professional advice. Listeners are encouraged to consult their own advisors in these areas. All right, everybody, huddle up. Play calls in. This is the Financial Huddle. Ready?

Ed Beemiller 0:14

Welcome back, Huddlers. It's time for our next episode of the Financial Huddle Podcast. Oh, yes, sir. As usual, I am joined by my partners in crime, Ryan Fleming.

Ryan Fleming 0:27

Absolute pleasure to be with you boys.

Ed Beemiller 0:28

And Mr. Brian Manier.

Ryan Fleming 0:30

What's up? What's up, everybody? What's up, Huddlers?

Ed Beemiller 0:32

Hey, it's great. Great to be back.

Why Taxes Change Everything

Ed Beemiller 0:34

Great to be uh talking about a topic we started talking about last podcast. Which we did. Continuation. We we are gonna kind of pick up where we left off a little bit and get a little more into the what I like to say, get into the weeds, get into the details.

Ryan Fleming 0:49

The weeds.

Ed Beemiller 0:49

And our our topic here is five reasons why a Roth 401K could be considered over a pre-tax 401k. Yep. And as Ryan mentioned uh in our last episode, probably one of the most popular retirement plans or strategies out there is the 401k. You know, most people graduate from college, go to work for a company. The company offers some type of pre-tax benefit to their employees. Traditionally, 401k, if you work for the government, other entities could be a 403B. And we just start putting money into it. Don't know why. We were just told to do it, and we we just start investing money. The person in the cube said next to you. Hey, just do this. Okay. Hopefully you're gonna touch. And I can't touch it for forever. Yeah, that's right. So, but you know, another thing that was mentioned in in our last podcast was talking about the the power and implications of taxes.

Ryan Fleming 1:48

Yeah.

Ed Beemiller 1:48

And it's not just taxes when you're 65 and ready to retire. It's really you need to look at taxation and how it impacts your investments, your options, you know, what you're looking at throughout your lifetime. So the the concept of the whole Roth 401k, you know, similar to a Roth IRA, you're just making after-tax contributions to have tax-free growth in the future. And, you know, that that is a positive, right? Yeah, everyone wants tax-free, tax-free assets, tax-free growth. But, you know, once again, if we go back, you know, doing a little historical significance, the the Roth was signed into law in 1997. You know, it's not been that long ago. I mean, this is something relatively, as far as financial vehicles are concerned, that's relatively new.

Ryan Fleming 2:39

Yeah.

Ed Beemiller 2:39

So we're we're gonna go back to, you know, it's that time again here. We're gonna kind of kick off and dig in, but it is that time. It's that time. So, Ryan, why don't you uh why don't you get a little sunlight on what we're what we're talking about?

Roth 401(k) Adoption Stats

Ryan Fleming 2:53

Gotta love the stats. Hope you huddlers love our stat time and your We like it. You're coming out with a couple more that we love it. Hopefully you guys love it. Um Yeah, so uh a couple other things to note, you know, this idea of a 401k. We we recognize it's not the only vehicle people can save retirement dollars into. I mean, there's things like traditional IRAs, SEP IRAs, deferred COP, 403Bs, TSPs, like tax shells. So but this is by and large uh a biggie, okay? And um, but uh also of note that I think is important is that these these 401ks were a byproduct of pensions kind of going away through the ERISA Act, right? So the employee retirement in some uh income securities act that kind of like fizzled a little bit, and that's why we don't see tons and tons of pension programs nowadays.

Ed Beemiller 3:38

And well, you could also argue corporate greed. Corporate greed, it was too expensive. Why'd they get away with pensions? Because it costs a lot. There you go. A little expensive.

Ryan Fleming 3:45

There's always a why behind it, right? But the 401k, uh, by and large, um, really got launched like in 1980, right around there, 79, 80, right around there. Um, but this idea of Roth, like Ed talked about, um, I I think this is important to understand, darn near 100% of employers offer an after-tax Roth contribution opportunity. 95.6% of employers um offer this Roth 401k.

Ed Beemiller 4:13

And um that's that that wasn't around when I, you know, graduated. Obviously, I'm a little little a little older, yeah, a little seasoned. Yeah, there was no such thing as, you know, you just it was a traditional 401k. So these these are relatively new options.

Ryan Fleming 4:27

Exactly. And to put that in context a little bit more, Huddlers, uh, since 19, or excuse me, not 19, but 2015, um, back then only about 59.9 percent, so about 60 percent of employers offered this after-tax Roth contribution opportunity. Um, so that was interesting to me. Another stat is even more interesting to me, and this is why we wanted to do this today, Huddlers, to be honest with you. So, given the fact that this is the case, that 90 almost 96% of employers do offer this, 21 to 22 percent of participants use the Roth option, which was actually kind of astonishing to me.

Brian Minier 5:05

Yeah, uh there's a lack of awareness, and I'm sure I'm sure you guys see it when you're talking to people. If you ask the question, does your company provide a Roth option your 401k? A lot of times, not sure. They don't know. They don't know.

Ryan Fleming 5:16

And we want to really bring awareness to this big time. Uh, you guys have heard us uh have kind of a repetitive narrative about taxes, the rising tax environment that we're in. Um, so a couple other things as a follow-up to that as well, and not a lot of people know this at all either. 20% of employers allow Roth match contributions. So think about that. So what the company would put into the 401k typically has always been pre-tax, but what this stat is saying is that 20% of employers now allow the matching portion to go into Roth. And of that, very I think a very, very few percentage of people even have that happen. And very, very few percentage of employers even bring it up or even are executing that. So, you know, as an employee, um, I think what I want to say to the huddlers here is that the reason why we said

Reason One Tax Rate Risk

Ryan Fleming 6:10

this could be considered is because a lot of people fall in our country within that 22 to 24 percent tax bracket. Now, if you're in the 10% or the 12%, you really got to do a little bit more statistical analysis if this makes sense or not. If you're in the 32%, 35%, or 37% brackets, um, the Roth contribution might not be what you want to do. You may want to do pre-tax to get that deduction now. But the sweet spot that we're talking about here covers a very wide range of incomes. Just to give the huddlers an idea, the the top of the 12, uh the top of the 12% bracket is right around $100,800 for this year. And then moving into the top of the 22% bracket, that gets us up to like $211,000. And then the top of the 24% bracket is over $400,000. So that 22 to 24% bracket covers a human range.

Ed Beemiller 7:10

Yeah, a pretty significant range.

Ryan Fleming 7:11

Exactly. And that's where we would say that that's kind of the tax sale of a lifetime.

Brian Minier 7:15

And this is what's pretty cool about that. If you phase out of doing a typical Roth IRA, you you can't make a contribution because your income is too high. Yeah. Well, guess what? With the Roth 401k, you don't phase out, you're able to contribute.

Ed Beemiller 7:30

So it it it is a way, once again, it it's specific to each individual. Just because they're at a higher, yeah, higher earnings, yeah, you know, the top of the 2010.

Brian Minier 7:42

That's right. And they and you said that 24, there's a large range.

Ryan Fleming 7:45

Right, it's huge, it's huge. So with that, we wanted to honor what we said. We want to do the five reasons to consider this, okay? And I'll start off with number one. And it's this idea that I brought up last time that Brian talked about. It's this idea that we have a huge tax rate risk to our dollars. That it's the idea that taxes are on the sale of a lifetime. If you look at since 1913, when the government started enacting income tax on our income, all the way until right now, 2026, we are at some of the lowest quartiles ever in the history of our country. Uh, Huddlers, the highest uh income tax bracket for the highest earners ever in our country was 94%. The entire decade of the 70s, the highest bracket for the highest income earners was 70% or above. And today we are at 37% for the foreseeable future. I think we've got about 10 more years or so before taxes and the IRS and the government are gonna have to go bananas and bring in more revenue. And the justification for that is what you talked about last time with Lawrence Kotlikov, you know, who does that fiscal gap counting, says that the Social Security Trust Fund is going to run out like in 2033, the Medicare Trust Fund about the same time. And so here we are in 25, 26. We've got seven, eight, nine, ten years, I think, before things might have to happen in the future.

Ed Beemiller 9:02

But there is and whether we're blue or red could also uh lead to possible tax changes.

Ryan Fleming 9:09

You could, but I honestly think that it's it's it's really an apolitical thing because it's a math problem. Yeah. And it's unsustainable what we're doing. And so nowhere in Europe does a country have as much debt as what we have and as low as a tax situation that we have, so on and so forth. So the number one reason that we might want to consider contributing to a Roth 401k over a pre-tax 401k is that we have a massive tax rate risk. So when do we jump off the tracks and divorce ourselves from the government?

Ed Beemiller 9:37

And we we talked a little bit the last podcast, you know, you're you're you're in business with the IRS and the government, right?

Ryan Fleming 9:44

So it's not all yours.

Ed Beemiller 9:45

Do you want to be the managing partner or do you want to be the minority partner who has no say?

Ryan Fleming 9:51

That's right.

Ed Beemiller 9:51

And that's what you're doing there. You're controlling the workcome.

Ryan Fleming 9:55

That's a good word, yeah. Because every single year that that we delay paying the tax, then we could get an amazing rate of return. Plus, we're paying the fees just to put more money back into the government's pocket. Right. So think about that. We take on all the risk, we pay the fees, and we defer the tax at a point in time where they get to vote on how much more of that money they get to keep.

Ed Beemiller 10:18

And I it's funny. I have That's crazy. I have a number, you know, I have not a lot, but some clients that have very, very left or right view viewpoints. And they're always like, oh, the government's gonna come in and they're gonna take our all these company-sponsored 401ks, 403Bs. They're just gonna come in and take it. I said, Well, they're not gonna take it. I said, What's the easiest way for the government to get more of yours?

Ryan Fleming 10:40

Raise more revenue, bring it, yeah. Well, raise taxes. Taxes, right?

Ed Beemiller 10:43

Yeah. So they're not they're not taking your money, you know, in in the black of the night, you know, wearing wearing ski masks and gloves. They're just passing higher tax rates.

Ryan Fleming 10:55

I mean, that's what's going on here.

Ed Beemiller 10:57

Right.

Ryan Fleming 10:58

There's a lot of ways that everywhere and that is the same thing. So, yeah. So, number one, tax rate risk. What would be number two?

Social Security And Medicare Impacts

Brian Minier 11:06

Well, and you you've talked about the what we talked about last podcast, where we have all of these obligations to fulfill. Oh, yeah. One of those is social security. Yeah. So a lot of people don't realize your social security, believe it or not, for most people is taxed. Those benefits, you're gonna pay taxes on the benefits, and that's based on the provisional income. And the provisional tax. Yeah, can be taxed. Hopefully, it's not taxed. Right. And so the provisional income determines how much of those benefits are going to be taxed. For most people, it's up to 85% of your benefits at the ordinary income rate. Here's the thing there's two things that are not included in that provisional income cash value life insurance distributions and you guessed it, Roth IRA. So if you contribute to Roth Roth 401k that works just like a Roth IRA, that's not included in the provisional income, but you have a much better chance of lowering the tax obligation on your Social Security benefit.

Ryan Fleming 12:00

Absolutely, yeah. So number two would be anything that has the word Roth in front of it, there's it does not account against the provisional income, right? Which is phenomenal.

Brian Minier 12:09

That's right, right. Another thing, as far as obligation, we talked about Medicare. The way that your Medicare premiums, Part B premiums, are determined is based on what is called Irma brackets. That is determined by modified adjusted gross income. Guess what's not included in adjusted gross income? Modified adjusted gross income. You guessed it. Roth IRAs. So if you contribute to a Roth 401k, that is not going to be included in that, and that will help keep those Medicare Party premiums in that lower or the one of the lower brackets. Right. Yep. Yep.

Ryan Fleming 12:44

That's good.

Brian Minier 12:44

Okay.

Ryan Fleming 12:44

That's that's awesome.

RMD Changes And New Rules

Ed Beemiller 12:46

Yeah, and then and you know, and we look at you know what are the other advantages, you know. The next point, point number four, you know, this whole concept of RMDs, required minimum distributions. And it's it's been the last couple years, there's been a lot of changes. You know, we go back not too long ago, the RMD age was you know 70, 70 and a half. Well, now it's if you were born after a certain date, it's 73.

Ryan Fleming 13:10

If you were before 1960 or after, is it 75? 75. Yeah.

Ed Beemiller 13:15

And so with with that case, you know, what that means is the government's gonna say, hey, hey, keep deferring, but you can only defer it until this point. At some point we want ours, right?

Ryan Fleming 13:26

We need to get the piper.

Ed Beemiller 13:27

You know, our taxes back. Well, guess, guess what type of account does not require RMDs?

Brian Minier 13:33

Let me guess, Roth IRAs.

Ryan Fleming 13:34

Yes, Roth IRAs, Roth 401ks. Now it that's that didn't always used to be the case, right?

Ed Beemiller 13:39

No, it didn't. No, it didn't. Um, I mean, that's a relatively new uh basically legislation was passed on that. That's a big deal.

Brian Minier 13:48

It is, because if you can take advantage of that, if you don't spend those down, that's a lot more money you are able to leave to your kids or whoever your beneficiaries are. And you get to leave that in a tax-free manner.

Ed Beemiller 14:00

Tax-free manner, which which is you know uh much better than leaving it in a pre-tax account, which we have kind of touched on before, um, and the tax implications that I think Brian you mentioned in the last you know, last episode there.

Legacy Planning And The 10-Year Rule

Ed Beemiller 14:15

And then the one thing a lot of people don't think about because most people are worried about themselves in their current lifetime. But for those that go a little more strategic and look at planning, they're thinking about their heirs and then legacy.

Brian Minier 14:29

So yeah, how does that work? Yeah, I always talk about this in my classes when we talk about legacy, when you think about pre-tax dollars, and you mentioned it, RMDs. They keep extending the ages plus 70 and a half, and everybody was confused. Well, where's the half? What does that mean? Okay, let's do it to 72, and then 73, and now 75. And I'm like, it's kind of interesting that they keep deferring that when we know there's a shortfall of money, we need those taxes. Why do they defer that? Well, guess what happens when you don't spend that money, but your kids get it? What do your kids have to do? We talked about this last episode. There's that 10-year rule. Right. That 10-year rule, you have to liquidate the entire account within 10 years. You're gonna pay more in taxes because that's in addition to the wages that you're making. If taxes change, like we've talked about.

Ryan Fleming 15:16

What if they double?

Brian Minier 15:17

Yeah, we call it a tax bomb, right? Tax. So the what happens with Roth IRAs when you inherit those? Oh, you still have to spend it in the 10-year period, but you don't have to pay the taxes on it. It doesn't impact Social Security, it doesn't impact Irma. So a lot of people when they when they think about IRAs or pre-tax versus Roth IRAs or Roth 401ks, one of the things they're not thinking about is what it means from a legacy standpoint.

Ryan Fleming 15:47

Uh 100%. I mean, it it is really, really important to consider that as well, too. So, you know, these five things I think are top of the line uh considerations. Again, it's different for every single person, obviously. Uh, we would have you come in and talk to us about that. But yeah, I think I think you guys hit the nail on the head. I think I think those are legit.

Brian Minier 16:07

Yeah, we don't want to say that every person should do a Roth 401k. Yeah. But it should be considered. Could you do partial? And you can. I mean, you can kind of hedge your bet. You can go up for for higher income earners. That is a topic of conversation. Is you may be looking for those deductions now, right? But what about in the future? Yep. And so you you can mix it if you want, but you have to determine what is best for you. So we're not saying everybody needs to do it, but in light of what you said, Ryan, more and more companies are creating this offer to do and within those tax brackets, considering those income levels in that tax bracket, look at look at those options.

Ryan Fleming 16:45

And at 22 to 24 five.

Ed Beemiller 16:47

Yeah. And

Mix Strategies And Closing CTA

Ed Beemiller 16:48

so, you know, to kind of wrap this up, I mean, just like just like any option out there, it could be different for each individual. And that's where working with a financial professional like us. Hey guys. Who would have thought about it? Shameless plug. Yeah, shameless plug. Sorry, sorry, my bad, my bad. But, you know, we we we talked in the last episode, and we've talked many times before, about bucket planning, right? Just having, you know, you you have your now bucket, you know, kind of a more midterm, you have a long-term buckets, you know, all these buckets have potentially different, not only asset classes, but they're also potentially treated different from a tax standpoint. 100%. So yeah, so having a mix of of each of those, and once again, if you're afforded that opportunity within a Roth 401k, what we're saying is you you definitely should take a look at it and and seriously consider it and then and then speak with speak with the financial professional about that to really see what fits your specific situation.

Ryan Fleming 17:44

Yeah, I agree. Uh it's just you got to follow the evidence. Yeah, right. No one knows exactly for sure, but we have to use a rational mind and figure out where the evidence lead us and what is most plausible. Yep. And then put your trust into that.

Ed Beemiller 17:55

Yep. So, Hudlers, thank you again for joining us. I hope we shed a little bit of light to see you on this. I'm sure you've heard the uh you know the Roth topic. You you've you're most are familiar with 401ks. We just try to dig a little deeper here in these last cup couple episodes here. So appreciate you listening, appreciate, appreciate you watching if you're watching, or or both. You you can listen and watch. You know, it it anything's possible. Everything's possible. Pass it on to other people too. Yes hey, yeah, pass pass on, get other people, have them join Huddle Nation. The more the merrier there. So guys, until next time, once again, thank you. We're signing off. Take care, everybody.

Brian Minier 18:36

Like and subscribe, please. Yep, take care.