Choose between paying taxes now or paying taxes later

When choosing a retirement savings plan, it’s important to consider how your contributions will have an impact on your taxes now and in retirement. Whether you’d prefer to pay taxes now (with an after-tax contribution) or pay taxes later (with a pre-tax contribution), there are benefits to both options.

You can pay taxes now with a Roth

With a Roth retirement savings account, you make after-tax contributions by paying income taxes before the money is added to your retirement account. Any growth is tax-free, and you’ll get tax-free withdrawals (as long as you meet the requirements), which can reduce your income taxes in retirement.¹

Or pay taxes later with a traditional retirement account 

With a traditional retirement savings account, each contribution you make to your retirement plan goes into your account before you pay income taxes. As a result, your taxable income is reduced so you’ll pay less in current taxes. When you take withdrawals from your account in retirement, you’ll pay taxes on your contributions and earnings.²

You may be able to enjoy the benefits of both

If your employer matches your contributions or provides a lump sum retirement benefit, this money must be put into a traditional, pre-tax account, even if you choose a Roth account for your contributions.

If you’re not eligible for a Roth IRA, you may be eligible for a Roth 401(k)

Not everyone is eligible for a Roth IRA as eligibility is based on income. If you earn more than the income limit, you may not be able to contribute. But you can still contribute to a pre-tax retirement account, such as a 401(k), 403(b) or 457(b) account, as they don’t have income limitations.

Ready to learn more?

Explore more of our articles by visiting our Retirement Education Center. You may also want to consult with a qualified tax professional.

Tax rates and related legal requirements can be altered at any time by acts of Congress, regulatory authorities, or the courts. Future conditions cannot be guaranteed.

¹ Withdrawals from a Roth account prior to age 59½ or within five tax years of account creation may be subject to ordinary federal income tax, a 10% additional federal tax, and possibly additional state taxes or penalties as well. Limited exceptions are available.

² Withdrawals from a traditional account prior to age 59½ also may be subject to a 10% additional federal tax and possibly additional state taxes or penalties as well. Limited exceptions are available.

Important Note:  Equitable believes that education is a key step toward addressing your financial goals, and we’ve designed this material to serve simply as an informational and educational resource. Accordingly, this article does not offer or constitute investment advice and makes no direct or indirect recommendation of any particular product or of the appropriateness of any particular investment-related option. Your needs, goals and circumstances are unique, and they require the individualized attention of your financial professional. But for now, take some time just to learn more.

This article is provided for your informational purposes only. Please be advised this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent advisor.

Equitable Financial Life Insurance Company (New York, NY) issues life insurance and annuity products. Securities offered through Equitable Advisors, LLC, member FINRA, SIPC. Equitable Financial Life Insurance Company and Equitable Advisors are affiliated and do not provide tax or legal advice.