Forbes has published an article, “Secure 2.0 Retirement Bill Mandates Roths And More”, which discusses the numerous provisions of the big retirement bill that the House passed this week, known as Secure 2.0. The article begins as follows:
The big retirement bill that the House passed this week, known as Secure 2.0, has several provisions that would mean more taxpayers can get Roth money into their nest eggs—and in some cases mandates Roth contributions. That’s a big deal because the tax consequences of whether you have pre-tax or Roth accounts are significant, and there are traps for unwary taxpayers.
Roth retirement accounts are funded with after-tax money. They then grow tax-free, and when you pull the money out, it comes out tax-free. In contrast, with traditional pre-tax accounts, you get a tax break upfront, the money grows tax-deferred, and then you owe income taxes when you pull the money out in retirement.
One could argue that this distinction—between pre-tax and Roth accounts—is too complicated for the average taxpayer to have to consider. And some employers take that stance now. They offer only traditional pretax retirement accounts. The reason: For some taxpayers, they’re better off making retirement account contributions on a pre-tax basis, to keep down their current income and qualify for other tax breaks. Yet for other taxpayers, they’re better off maximizing the amount that goes into the Roth bucket.
Posted by Anthony Tran, Associate Editor, Wealth Strategies Journal