Suze Orman is a renowned financial expert, and her advice often focuses on providing general guidelines for financial planning. While she may advocate for prioritizing Roth accounts for retirement savings, it's important to note that individual circumstances can vary, and there isn't a one-size-fits-all approach.
Contributing to a pre-tax 401(k) account has certain advantages, as you mentioned. By making pre-tax contributions, you can reduce your taxable income in the current year, potentially lowering your tax liability. Additionally, many employers offer matching contributions, which can be a valuable benefit. These matching funds can significantly boost your retirement savings.
On the other hand, Roth accounts, such as a Roth IRA or Roth 401(k), offer the advantage of tax-free withdrawals during retirement. Since contributions to Roth accounts are made with after-tax money, they don't provide immediate tax benefits. However, qualified withdrawals from Roth accounts, including both contributions and earnings, are typically tax-free.
The decision between contributing to a pre-tax 401(k) or a Roth account involves considering factors such as your current tax situation, your expected tax situation in retirement, and your personal financial goals. Here are a few points to consider:
Current and future tax rates: If you anticipate being in a higher tax bracket during retirement, contributing to a Roth account can be beneficial, as you pay taxes at your current lower rate and enjoy tax-free withdrawals later. If you expect your tax rate to be lower in retirement, a pre-tax 401(k) may be more advantageous.
Diversification of tax treatment: Having a mix of pre-tax and after-tax retirement accounts can provide flexibility during retirement. It allows you to have different sources of income with varying tax consequences, giving you the ability to manage your tax liability strategically.
Employer match: If your employer offers a matching contribution for your pre-tax 401(k) contributions, it's generally advisable to contribute at least enough to receive the full match. The employer match is essentially "free money" and can significantly boost your savings.
Other considerations: Individual factors such as your age, financial goals, expected investment returns, and available investment options within your retirement accounts can also influence your decision.
It's essential to evaluate your own financial situation, consult with a financial advisor if necessary, and consider the long-term impact of different retirement savings strategies before making a decision.