Prepay Your Retirement Taxes (And Start a Walking Club...)

This year, one major focus I will be discussing with my clients is building Roth money. Roth money is the key to reducing or even eliminating the largest expense most of you will have in retirement—taxes.

Quick refresher on Roth money. This is money you contribute to retirement AFTER you pay taxes on it. Compare this to the “traditional” retirement contributions which are tax-deductible in the year made.

For example:

If you earn $50,000 and contribute $10,000 to a Roth IRA, you pay income tax on the full $50,000—no tax break for the contribution.
If you instead contribute that $10,000 to a traditional account, you pay income tax on only $40,000 that year because of the deduction.

The catch is, in the future, when you withdraw from the traditional or pre-tax account you pay income tax on all of your contribution plus any growth. Using that same example, if your $10,000 contribution grows to $50,000 by retirement and you withdrew it, all $50,000 would be taxable. Conversely, if you contributed that money to a Roth and it grew to $50,000 and you withdrew it, none of the withdrawal would be taxable. The power of the Roth is that anything you withdraw in the future—both contributions and growth—is tax free.

The old-school philosophy was that during your working years, you are earning income, much more than when you retire, and so that was when you should take advantage of every tax deduction available. This pushed most people into saving into pre-tax retirement accounts like 401(k)s and IRAs; these accounts give you a tax deduction immediately, which made them very appealing. And when you are in your highest earning years, getting pummeled with seemingly endless taxes, this strategy feels like it makes a lot of sense. Why not plan to reduce your taxes now—and worry about them later, when your income is (likely) much less?

But I argue, as with most things in life, delayed gratification is the key to your ultimate success and enjoyment—including in the realm of tax planning. If you are saving and investing, you already understand the importance of delaying the gratification of spending your money now so you can enjoy it even more in the future. Take this one step further, and you see that saving into after-tax accounts, like Roth IRAs and Roth 401(k)s is just another delayed gratification strategy—the ultimate one really. Because, if you are in retirement and not paying very much or any taxes, how good will that feel?

Roth Considerations If You Are Still Working

If you’re still unconvinced, here are some things to consider when utilizing Roth retirement savings accounts in lieu of traditional (or pre-tax) options.

Saving in Roth accounts is really saving more than just your contribution amount because you are also paying the taxes on that contribution ahead of time. For example, if you save $10,000 into a Roth account, and you face a 25% tax rate both now and in retirement, you’re really saving more than $10,000 because contributing it to the Roth is equivalent to putting away about $13,333 in pre-tax dollars (because you already paid the $3,333 in taxes upfront). However, if you saved that same $10,000 into a pre-tax account you will have to pay the taxes later when you withdraw the money in the future.

Prepaying your retirement taxes using Roth vehicles is just like proactively paying off your mortgage before retirement. You are using your resources in your highest earning years as a vehicle to reduce some of your largest expenses in your future. Keep in mind: once you retire, it is likely your earning potential will decrease substantially and you will have limited resources to cover your lifestyle costs—including taxes. With some or most of your retirement taxes paid, it’s one less expense you’ll have to sustain.

Roth Strategies We Want to Work With You To Implement

Here is a list of a few strategies we will recommend when it comes to Roth savings and your retirement:

Saving into your Roth 401(k), whether that is all your contributions or some with the intent to increase it to entirely Roth savings.
Funding an individual Roth either directly or using a back-door Roth funding strategy.
In-plan Roth conversions if you’ve saved money into your traditional 401(k)— some plans allow you to convert those monies regularly into the Roth segment.

Our goal with all our clients currently working is to encourage you to save the majority of your retirement into Roth vehicles. This may be done immediately or over time depending on your cashflow and current savings levels.

Roth Considerations If You Are Retired

For those of you no longer working, but instead withdrawing from the dreaded pre-tax accounts, you know the pain. Being forced to deal with withdrawals from pre-tax to accommodate required minimum distributions and tax payments from their retirement accounts is one of the largest challenges my retirement clients have—especially if they don’t want or need all of the money.

If you are a client with large amounts of pre-tax savings close to or in retirement, we review annually if a Roth conversion strategy might be worth the pain of incurring immediate taxes. There are several reasons that a Roth conversion during retirement might make sense for your situation.

You are (potentially) in a lower tax bracket. Since you have stopped working, it is likely you are in a lower tax bracket than when you were working. This may be an opportunity to annually “fill up your tax bracket” with pre-tax money conversions into Roths. Taking advantage of lower tax brackets to convert some of your pre-tax money into tax-free money, particularly early in retirement might be worth the headache. We will routinely run a tax analysis to determine if this should be considered.
You may want to reduce or eliminate future Required Minimum Distributions. There are a lot of people with pre-tax money withdrawal requirements that are more than they actually want or need to spend for their cost of living. Roth IRAs do not have Required Minimum Distributions, so converting some or all of your pre-tax monies to these will help reduce those withdrawal requirements.
Roth monies are inherited tax free. Just as building Roth money is prepaying your taxes, it is also prepaying taxes on anyone who inherits your Roth monies. For estate and legacy planning, Roths can be invaluable.

It can be costly to convert pre-tax monies into Roth, so most times this strategy is done piecemeal over years depending on the long-term projections and reviewing your taxes annually.

Bottom line, nobody seriously believes taxes will be going down anytime soon, and if you can reduce or eliminate that concern for your future self, it will be worth it. Our job is to help you configure your current cashflow so it’s as tax efficient as possible, not only now but into your future.

Rural Life Lately

As many of you know, I stopped drinking alcohol almost a year ago (February 6, 2025). This one decision had massive impacts on all parts of my life. Ironically, the one area I was most worried about—my social life—only improved. So much of our socializing in life is based around alcohol, it’s hard to imagine how we function without it.

Turns out, my relationships improved without the alcohol. And, because I stopped drinking I started thinking of activities I enjoyed outside of happy hour (you would be shocked at how much time we spend drinking or thinking about it, even as moderate drinkers). This led me to finally started the walking group I envisioned for over a year. No longer worried about feeling slightly hungover on Saturday mornings and finding myself much more interested in activities during the day instead of bar sitting at night, I founded the Sackets Harbor Walking Group. This group has changed my entire life.

Not only have I met some amazing people of all ages and life paths, but we’ve united our small community a little bit more. We’ve helped each other through the death of a spouse, put up lights in our village over the holiday, got a group together to celebrate a Christmas tree lighting including caroling and hot chocolate, celebrated birthdays, and just found friendship as we all struggle through the joys and sorrows of life. This last month with our crazy cold snowy weather in the North Country, we checked on one another—making sure everyone made it home safe during the week and even helping one another clear the snow. To say we just walk once a week doesn’t do it justice, now these people are part of my life, and I’m so much better for it!

So if you ever have thought about putting yourself out there, starting a club, walking group, or anything—just do it. You won’t regret it. You will meet amazing people you never knew existed and will be able to improve yourself and the world around you just doing things like living your life. Oh, if you’ve ever wanted to stop drinking, do that too—you definitely won’t regret it!