Roth 401(k): To Contribute or Not to Contribute? A Comprehensive Comparison

Top 7 Reasons to Contribute to a Roth 401(k)

1. Tax-Free Withdrawals

Contributions grow tax-free, and qualified withdrawals in retirement are tax-free, providing a tax-free income stream.

2. No Required Minimum Distributions (RMDs)

Unlike traditional 401(k)s, Roth 401(k)s have no RMDs during your lifetime, giving you more control over your retirement funds.

3. Tax Diversification

Having both Roth and traditional retirement accounts provides tax diversification, allowing your to better manage your tax situation in retirement.

4. Inheritance Benefits

Roth 401(k)s can be passed on to heirs with tax-free growth, providing a valuable estate planning tool.

5. Potential for Higher Tax Rates

If you expect to be in a higher tax bracket in retirement, paying taxes now with a Roth 401(k) may save you money in the long run.

6. No Income Limits

Unlike Roth IRAs, Roth 401(k)s do not have income limits, making them accessible to high earners.

7. Employer Contributions

you can still receive employer matching contributions, which are placed in a traditional 401(k) account, allowing you to benefit from both types of accounts.

Top 7 Reasons Not to Contribute to a Roth 401(k)

1. Immediate Tax Impact

Contributions to a Roth 401(k) are made with after-tax dollars, reducing your current take-home pay.

2. Lower Current Income

If you are in a high tax bracket now but expect yo be in a lower tax bracket in retirement, a traditional 401(k) may be more beneficial.

3. Potential Tax Law Changes

Future tax laws could change, impacting the benefits of Roth 401(k) accounts.

4. Complexity in Management

Managing both Roth and traditional accounts can add complexity to your retirement planning.

5. Limited Contribution Limits

The overall contribution limit for 401(k) accounts is the same, meaning your total contributions to Roth and traditional accounts combined cannot exceed the annual limit.

6. No Immediate Tax Deduction

Contributions to a Roth 401(k) do not provide an immediate tax deduction, unlike traditional 401(k) contributions.

7. Impact on Financial Aid

Having significant Roth 401(k) balances may impact your eligibility for financial aid or other need-based assistance programs.

Conclusion

Deciding whether to contribute to a Roth 401(k) depends on your current financial situation, future tax expectations, and retirement goals. Weighing the pros and cons can help you make an informed decision that aligns with your long-term financial strategy.

Curious which is best for you or want to learn more about the Roth? Give us a call.

Scott Higgins | AIF ®, CFP®, CPFA®, NSSA®

Financial Advisor

Since 2012 at Rose Street, Scott has been responsible for helping the firm’s individual wealth management clients with income strategies for retirement and consulting with employers with their employee retirement plans. In free time, he enjoys golf, biking, skiing, cooking, and traveling. Fun Fact, Scott has a hobby of filling growlers with coins!

Securities and Investment Advisory Services Offered Through M Holdings Securities, Inc., a Registered Broker/Dealer and Investment Adviser, Member FINRA/SIPC. Rose Street Advisors is independently owned and operated. #7548799.1

Maximizing Returns: Strategic Asset Allocation for Roth and Pre-Tax Retirement Accounts

As a financial advisor, we employ a strategy that allocates more aggressive and growth-oriented assets to Roth accounts while positioning conservative assets in pre-tax retirement accounts. This approach is designed to optimize the long-term growth potential and overall risk profile of your global portfolio. Here's a closer look at how this strategy works and why it benefits our clients.

Strategic Allocation: Roth vs. Pre-Tax Accounts

Roth Accounts:

1. Aggressive Growth Assets: We allocate higher-growth investments, such as stocks, small-cap equities, and emerging markets, to Roth accounts. The tax-free growth and withdrawals of Roth accounts make them ideal for investments with higher potential returns.

2. Long-Term Horizon: Roth accounts typically have a longer investment horizon, allowing for more aggressive growth strategies. The extended time frame provides opportunities to ride out market volatility and capitalize on compounding returns.

Pre-Tax Accounts:

1. Conservative Assets: In pre-tax accounts, we allocate more conservative investments, such as bonds, money market funds, and dividend-paying stocks. these assets provide stability and income, aligning with the tax-deferred nature of pre-tax accounts.

2. Mitigating Tax Impact: By placing conservative assets in pre-tax accounts, we aim to reduce the tax burden when required minimum distributions (RMDs) begin. The lower growth rate of conservative investments results in smaller RMDs, helping manage taxable income in retirement.

Benefits of This Strategy

1. Tax Efficiency: Allocating high-growth assets to Roth accounts allows for tax-free compounding of returns, maximizing the benefits of tax-free withdrawals in retirement.

2. Optimized Growth Potential: By leveraging the tax-free nature of Roth accounts, we enhance the potential for substantial growth, which can significantly boost overall retirement savings.

3. Risk Management: Placing conservative assets in pre-tax accounts helps balance the portfolio's risk, providing stability and protecting against market downturns.

4. Holistic Approach: This strategy ensures that all assets work together to meet the global portfolio’s risk profile and investment objectives, creating a cohesive and effective retirement plan.

5. Flexibility in Retirement: The combination of aggressive and conservative assets across different account types provides flexibility in managing withdrawals and tax implications during retirement.

Considerations for Investors

• Risk Tolerance: Assess your risk tolerance to ensure the asset allocation aligns with your comfort level and financial goals.

• Time Horizon: Consider the time horizon for each account, as longer horizons typically warrant more aggressive growth strategies.

• Tax Implications: Evaluate the tax benefits and potential impacts of different account types to maximize overall portfolio efficiency.

Conclusion

Our strategic allocation approach, dividing aggressive growth assets to Roth accounts and conservative assets to pre-tax accounts, aims to optimize tax efficiency, manage risk, and enhance growth potential. This holistic strategy ensures that your total assets work together to meet your global portfolio risk profile and investment objectives, providing a strong foundation for a secure retirement.

Scott Higgins | AIF ®, CFP®, CPFA®, NSSA®

Financial Advisor

5 Strategies to Reduce Future Required Minimum Distributions (RMDs) Before They Begin

If your retirement savings exceed what's needed to support your lifestyle, required minimum distributions (RMDs) could significantly increase your taxable income and even raise your Medicare premiums. Fortunately, there are strategies to proactively reduce future RMDs or defer them to minimize their impact. Here are the five effective strategies:

1. Roth Conversions

• Convert part of your traditional IRA or 401(k) to Roth IRA before reaching RMD age.

• Roth IRAs do not have RMDs during your lifetime, and future withdrawals are tax-free.

• Conversions will trigger taxes in the year of conversion, but this can be managed by spreading conversions over several years, especially when your taxable income is lower.

2. Qualified Charitable Distributions (QCDs)

• Once you reach age 70 1/2, you can donate up to $108,000 annually directly from your IRA to qualified charities.

• These distributions count toward satisfying your RMDs but are not included in your taxable income.

• This strategy is ideal if charitable giving is part of your financial plan.

3. Accelerated Withdrawals

• Take larger withdrawals from your traditional accounts before RMD age to reduce the account balance subject to future RMDs.

• Withdrawals are taxable, but they may reduce future RMDs and spread out the tax impact over time.

• Be mindful of staying within your current tax bracket to avoid triggering higher taxes.

4. Delay Social Security Benefits

• Delaying Social Security until age 70 can reduce taxable income during your early retirement years, allowing more room for tax-efficient Roth conversions or withdrawals.

• This also maximizes your Social Security benefits, which can complement other tax-planning strategies.

5. Shift to Taxable and Tax-Deferred Accounts

• If you're still working or contributiong to retirement accounts, consider redirecting new savings to taxable brokerage accounts or tax-deferred options, such as health savings accounts (HSAs).

• Taxable accounts offer flexibility for withdrawals without RMD rules, and HSAs provide tax-free withdrawals for qualified medical expenses.

Final Thoughts

Planning ahead to manage future RMDs can reduce taxes and prevent surprises in retirement. By implementing these strategies, you can maintain more control over your income and minimize unnecessary tax burdens.

Scott Higgins | AIF ®, CFP®, CPFA®, NSSA®

Financial Advisor

Secure Your Legacy: Why You Must Add a Beneficiary to Your Retirement Account Now!

Designating a beneficiary for your retirement account is a crucial step in ensuring your hard-earned savings are distributed according to your wishes. Here's why it's essential and the potential pitfalls of not having a designated beneficiary:

Why You Must Add a Beneficiary

1. Control Over your Assets: Naming a beneficiary ensures that your retirement assets go directly to the individuals or entities you choose, without going through lengthy and potentially costly probate process.

2. Ease for Your Loved Ones: A clear beneficiary designation simplifies the process for your loved ones during an already difficult time. It helps avoid conflicts and confusion about who should receive your assets.

3. Tax Benefits: Beneficiaries may receive favorable tax treatment. For example, a spouse can roll over the account into their own IRA, potentially deferring taxes further.

Potential Issues Without a Designated Beneficiary

1. Probate Process: If no beneficiary is named, your assets may have to go through probate, which can be time-consuming and expensive. This delay can prevent your loved ones from accessing funds when they might need them most.

2. State Default Rules: In the absence of a beneficiary, state laws will determine how your assets are distributed, which may not align with your wishes. This could lead to unintended recipients receiving your funds.

3. Increased Tax Burden: Without a designated beneficiary, your retirement assts may be subject to higher taxes, reducing the amount your loved ones ultimately receive.

Take Action Today!

Ensuring your beneficiary designations are up to date is a simple yet vital step in securing your legacy. Regularly review and update your designations to reflect life changes such as marriage, divorce, or the birth of a child.

Scott Higgins | AIF ®, CFP®,CPFA®, NSSA®

Financial Advisor

Since 2012 at Rose Street, Scott has been responsible for helping the firm's individual wealth management clients with income strategies for retirement and consulting with employers with their employee retirement plans. In free time, he enjoys golf, biking, skiing, cooking, and traveling. Fun Fact, Scott has a hobby of filling growlers with coins!

Empowering 401(k) Plan Sponsors: Navigating Success in 2025

As we step into 2025. 401(k) plan sponsors find themselves at the forefront of a rapidly changing landscape marked by new regulatory requirements, advancements in technology, and evolving employee expectations. At Rose Street Advisors, our mission is to help you stay ahead, ensuring your retirement plan remains competitive, compliant, and effective. Here are the key focus areas for 2025:

1. Adapting to SECURE 2.0 Updates

With the complete implementation of SECURE 2.0 provisions in 2025, plan sponsors must prioritize compliance with new rules, such as expanded catch-up contributions and automatic enrollment requirements. Collaborate with your advisor to ensure timely plan amendments that align with these updated guidelines. These changes present an opportunity to enhance plan design for participants.

2. Embracing Flexible Fiduciary Practices

Achieving fiduciary excellence requires ongoing evaluation of your plan’s operations, investment lineup, and participant experience. Given shifting market dynamics, now is the time to reassess the performance and fees of your investment options and adjust the plan design to meet employee needs.

3. Enhancing Financial Literacy Through Technology

A standout trend in 2025 is the increased emphasis on personalized financial education. Employees seek interactive, accessible resources to guide their retirement decisions. Consider mobile apps, webinars, and AI-driven tools that resonate with a digitally savvy workforce. Better education leads to better engagement—and ultimately, better retirement readiness.

4. Automation and Plan Design Optimization

Automatic features, including enrollment, escalation, and re-enrollment, remain regulatory favorites. These features not only align with industry best practices but also significantly boost participation rates. Evaluate how incorporating these features, along with well-chosen QDIAs, can simplify the participant experience and increase overall plan effectiveness.

5. Strengthening Cybersecurity Measures

As the use of digital platforms grows, the importance of robust cybersecurity cannot be overstated. Implement advanced measures to protect participant data and ensure your service providers meet stringent security standards. A secure plan inspires trust and safeguards your organization against potential liabilities.

6. Benchmarking for Competitiveness

With economic pressures and increased transparency, regularly benchmarking your plan against peers is crucial. Review fees, performance, and participant outcomes to ensure your plan stays competitive. This analysis also helps negotiate better terms with providers and enhance the overall value of your plan.

7. Streamlining Administrative Processes

Simplify plan administration by leveraging modern tools and outsourcing where appropriate. Efficient processes save time, reduce errors, and allow your team to focus on higher-level strategic initiatives.

Looking Ahead

As 2025 unfolds, the ability to anticipate and adapt to changes will define the success of your 401(k) plan. At Rose Street Advisors, we specialize in breaking down complexities and providing tailored guidance. Whether it’s navigating new regulations, enhancing participant engagement, or leveraging technology, we are here to elevate your retirement program.

If you’d like specific updates or additional insights for 2025, let us know!

Scott Higgins | AIF ®, CFP®,CPFA®

Financial Advisor

Understanding the New Catch-Up Contributions and Retirement Plan Limits for 2025

Enhanced Catch-Up Contributions for Ages 60 - 63

Starting in 2025, individuals aged 60 to 63 will benefit from increased contribution limits. This change is part of SECURE Act 2.0, designed to help older workers boost their retirement savings as they approach retirement. The new provision allows these individuals to contribute up to $10,000 or 150% of the standard catch-up contribution limit, whichever is greater¹ ². For example, with the standard catch-up limit for those aged 50 and older set at $7,500 for 2025, the enhanced limit for those aged 60-63 will be $11,250³.

This increase provides a significant opportunity for older employees to enhance their retirement savings, potentially lowering their taxable income and improving their financial security in retirement. It’s important for plan sponsors to communicate these changes effectively to eligible participants, ensuring they understand the benefits and how to take advantage of them.

New Retirement Plan Limits for 2025

In addition to the enhanced catch-up contributions, the IRS has announced new contribution limits for various retirement plans for 2025. Here are the key updates:

• 401(k), 403(b), and Governmental 457 Plans: The annual contribution limit for employees participating in these plans will increase to $23,500, up from $23,000 in 2024³ ⁴. This adjustment reflects the cost-of-living increases and provides participants with an opportunity to save more for retirement.

• IRA Contributions: The limit for IRA contributions remains unchanged at $7,000³. However, the catch-up contribution limit for individuals aged 50 and over remains at $1,000, with an annual cost-of-living adjustment³.

• Combined Contribution Limits: For employees aged 50 and older, the total contribution limit, including catch-up contributions, will be $31,000 for 401(k), 403(b), and governmental 457 plans³. For those aged 60-63, this limit increases to $34,750, considering the enhanced catch-up contributions³.

Implications for Plan Sponsors

As plan sponsors, it’s essential to update your plan documents and communicate these changes to your participants. Here are a few steps to consider:

1. Update Plan Documents: Ensure that your plan documents reflect the new contribution limits and enhanced catch-up provisions. Recordkeepers and TPA’s are all handling this differently and amendments must be made by December 31, 2026. This may involve working with your plan administrator or legal counsel to make the necessary amendments or have some kind of documentation on file until plan document language is available.

2. Educate Participants: Provide clear and concise information to your participants about the new limits and how they can maximize their contributions. Consider hosting informational sessions or webinars to explain the changes and answer any questions.

3. Review Payroll Systems: Ensure that your payroll systems are updated to accommodate the new contribution limits and catch-up provisions. This will help prevent any issues with contribution processing and compliance.

4. Encourage Participation: Use this opportunity to encourage eligible employees to take full advantage of the increased limits. Highlight the benefits of maximizing their contributions, such as potential tax savings and increased retirement security.

By staying proactive and informed, you can help your employees make the most of these new opportunities and enhance their retirement readiness. The changes for 2025 represent a significant step forward in supporting older workers and ensuring they have the resources they need for a secure retirement.

¹: Kiplinger ³: IRS ⁴: The Motley Fool ²: CNBC

Julia Sanders | AIF ®, CPFA®

Retirment Relationship Manager

Meet Julia, a people-focused life-long learner with several years of experience in the retirement plan industry. Throughout her career, Julia has been committed to maintaining strong client relationships by providing incredible customer service. She is passionate about helping clients define and plan for their retirement goals. Julia’s daily role at the firm energizes and reinforces her commitment to client-focused work.