The ongoing discussion of investing more into Pretax or Roth continues, join Scott and John as we dive into the discussion of investing. Seasoned Financial Advisors teach their recommendations and warnings on this past week’s Get Ready for The Future Show!

“Invest more in pretax or Roth? I’m a single mom with over $300k in rollover IRA, and $120k in 401k with most of it in Roth. Maxing out Roth IRA and 401k. What would you advise?” -Kiara from Fayetteville

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I’m a single mom, and like many others in similar situations, I have to consider my financial future and plan for retirement. With so many different retirement savings options available, it can be overwhelming to choose the best one for my circumstances. One of the most common choices is between a pretax or Roth retirement account.

A pretax retirement account, such as a traditional 401(k) or IRA, allows me to contribute money on a tax-deferred basis. This means that the money I contribute is not subject to income taxes in the year I earn it, but I will have to pay taxes on the contributions and earnings when I withdraw the money in retirement. This can be beneficial for me now, as it lowers my taxable income and allows me to save more for retirement, but I will have to carefully manage my withdrawals in retirement to minimize the tax impact.

On the other hand, a Roth retirement account, like a Roth 401(k) or IRA, allows me to contribute after-tax dollars. This means that I pay taxes on the money I contribute now, but my withdrawals in retirement are tax-free. This can be advantageous for me later in life when I want to access my retirement savings without having to worry about a large tax bill. Additionally, a Roth account offers more flexibility with withdrawals, as I can take out my contributions (but not the earnings) at any time without penalty.

So which retirement account is the best choice for a single mom like me? Ultimately, the decision comes down to my current financial situation and my anticipated tax situation in retirement. If I expect to be in a lower tax bracket in retirement or if I have a higher income now and want to reduce my taxable income, a pretax retirement account may be the better option. However, if I expect to be in a higher tax bracket in retirement or if I want to have tax-free income in retirement, a Roth retirement account may be the more suitable choice.

It’s important for me to carefully consider the pros and cons of each type of retirement account and to also take into account other factors such as my employer’s retirement plan options and my overall financial goals. Consulting with a financial advisor can also be helpful in making the right decision for my individual circumstances.

As a single mom, saving for retirement is crucial, and choosing the right retirement account can have a significant impact on my future financial security. Whether I opt for a pretax or Roth retirement account, the most important thing is that I am actively contributing to my retirement savings and taking steps to secure a comfortable retirement for myself and my family.