Pre-Tax vs Roth 401k: Which Wins?
R. Kenner French discusses the benefits of using a 401k to lower tax liability and prepare for retirement. He shares two specific scenarios where individuals wanted to reduce their tax liability and save for retirement. He explains the process of setting up a 401k and how it can lower tax liability by deferring income.
Kenner also discusses the difference between pre-tax and Roth contributions and the tax implications of each. He emphasizes the importance of consulting with a professional to determine the best strategy based on individual tax situations.
Takeaways
• A 401k can be an effective tool for small business owners to lower tax liability and save for retirement.
• Setting up a 401k allows individuals to defer income and receive tax deductions on contributions.
• There are two types of contributions to a 401k: pre-tax and Roth. Pre-tax contributions provide immediate tax savings, while Roth contributions offer tax-free growth and withdrawals.
• Consulting with a professional is crucial to determine the best strategy based on individual tax situations.
Sound Bites
• One of the easiest ways a small business owner can lower tax liability is with a qualified plan.
• Does it make sense for him to do it pre-tax meaning of using a traditional 401k or after tax, meaning a Roth IRA?
• He wouldn't be taxed next year. It's not going to be tax year after that. It's not going to be tax year after that. Let's say 20 years down the road.
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