Ann (Anne) Tergesen

speaker
47 appearances 1 recordings 1 series first heard Jul 2023 last heard Jul 2023

Ann (Anne) Tergesen’s voice in public audio — every appearance, attributed to the second.

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WSJ Your Money Briefing · A Popular 401(k) Tax Break Is Going Away · 20 Jul 2023 podcast
Those people, if they had preferred or would have opted or been defaulted into a traditional 401k for those catch-ups,
they would have gotten an upfront tax benefit that they will no longer get.
And instead, the money will be taxed this year.
The general point that financial planners make these days is that it's good to have what they call tax diversification, by which they mean most people can benefit from having some money in a Roth 401k or a Roth IRA, which is a similar type of account.
So the idea being that when you're in retirement...
people who have a lot of money in traditional 401ks, once they hit age 73, they have to start taking that money out.
That's something that the IRS mandates.
It's the law.
And when they start taking that money out, they owe income tax.
And so if you have been a big saver your whole life and you've put a lot of money into a traditional 401k, you are going to be
pulling a lot of money out annually, and that could easily get you back into the same kind of tax bracket that you were in when you were working.
So the idea being that if you have some money in a Roth, you can pull that money out tax-free.
And in a year when you say you need extra money to do something, but by pulling that money out of your traditional account, it's going to push you into a higher tax bracket.
Instead, you can take the money out of the Roth
You get that tax-free income.
It doesn't push you into a higher tax bracket.
It can be a very useful tool for tax planning in retirement.
Right.
So it can be a useful tax planning tool for people in retirement, but also the Roth is a far better asset for your heirs to inherit than a traditional 401k is.
The reason being that with a Roth, your heirs will inherit tax-free money.
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