No, I haven’t lost it, but I have been thinking hard about this saving for retirement thing.
Saving for retirement on a pre-tax basis now seems rather short-sighted.
There are several reasons to not save in a traditional 401(k) or IRA and instead use a Roth approach.
- Tax free income will come in very handy in retirement.
- You don’t have to worry about required minimum distributions (RMDs) and therefore have more flexibility
- Distributions from Roth accounts are not included in your Modified Adjusted Gross Income (MAGI) and will not increase your income and possibly cause you to pay higher Medicare Part B and D premiums under the IRMAA rules.
There are, however, a couple of things to consider before going all Roth.
- If your 401(k) does not offer a Roth option, you sure want to continue with pre-tax investing to get any employer matching contributions.
- If the percentage of pay you save will be less because you go from pre-tax to after tax savings, you need to do some math. However, even if that is the case, you may want to gradually shift to Roth savings to sustain the higher savings rate.