SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below. Should you make 401(k) or Roth IRA contributions? In a perfect world, the answer would be both. If you have the means, maximizing your traditional 401(k) and Roth contributions is a great way to build a diversified set of retirement savings. But, of course, your paycheck gets a vote. So, if you have to choose, should you switch from contributing to a 401(k) to Roth 401(k) or Roth IRA contributions? The an ...

Tax-free inheritance: Your heirs will pay taxes on withdrawals from inherited traditional IRAs . Heirs taking withdrawals from inherited Roth IRAs won’t pay any income taxes as long as the five-year rule has been met.Reduced taxable income: Traditional IRA withdrawals are subject to regular income taxes, increasing your taxable income. Roth IRA withdrawals are not taxable and not included in taxable income. Lower taxable income can keep you in a lower tax bracket. As an added bonus, it can help you avoid pa ...

Core Insights - The strategy of borrowing against a home for tax write-offs is outdated and often financially unwise, as the cost of debt typically outweighs the tax savings [1][3][4] Group 1: Financial Advisor's Recommendation - A financial advisor suggested a $260,000 Home Equity Line of Credit (HELOC) against a fully paid-off home for tax deduction purposes, despite the limited value of such deductions post-2017 tax reforms [2][6] - The couple, with a combined income of $225,000 and $1.6 million in retirement accounts, is also managing $150,000 in debt, including a $50,000 student loan [2][5] Group 2: Critique of Financial Strategy - The recommendation to use a HELOC for tax deductions is criticized as a misalignment of financial priorities, where real costs are incurred to save theoretical tax dollars [3][4] - The couple's financial strategy of contributing $50,000 annually to retirement while carrying consumer debt is seen as flawed, as it prioritizes uncertain future returns over eliminating guaranteed costs [5][6]

Core Insights - Nearly 93% of employers offer a Roth 401(k) plan, indicating a significant trend in retirement savings options for employees [1] - A new income test will be implemented in 2026, affecting catch-up contributions for high earners, specifically those earning over $145,000 from their current employer [3][4] - The IRS has introduced regulations that will complicate the way catch-up contributions are made to retirement accounts, particularly for middle-aged high-income earners [4][7] Group 1: Roth 401(k) Plans - The primary difference between a standard 401(k) and a Roth 401(k) is the tax treatment, with the latter being funded with after-tax income [2] - As of 2025, all workers can contribute up to $23,500 into 401(k) plans, with additional catch-up contributions allowed for those over 50 [4] Group 2: Income Test and Contributions - The new income test for catch-up contributions will only consider income from the current employer, which adds complexity for individuals with multiple jobs [6] - High earners will face a new tax burden starting in 2026, necessitating adjustments in their retirement savings strategies [10] Group 3: Financial Advisory Services - High-income households may benefit from specialized financial services to navigate the complexities introduced by the new tax rules [10][12] - Companies like Range offer flat-fee structures and expert guidance on tax strategies, which can be advantageous for maximizing retirement savings [11][12]

Core Insights - The ultra-wealthy utilize strategic financial tools, particularly the Roth IRA, to maximize wealth-building opportunities [1] Group 1: Roth IRA Contributions - Wealthy individuals maximize their Roth IRA contributions early in the year to benefit from longer tax-free compounding [3] - Starting contributions early, even if not at the maximum, allows for more growth over time; automating contributions can ensure consistent funding [4] Group 2: Advanced Strategies - The 'Backdoor Roth' strategy enables high-income earners to access Roth benefits by contributing non-deductible money into a traditional IRA and converting it to a Roth [5] - Many wealthy individuals invest in alternative assets through self-directed Roth IRAs, including real estate, private equity, and cryptocurrency [6] Group 3: Tax and Healthcare Planning - Strategic timing of Roth conversions can lead to significant tax savings, especially when done in lower tax brackets [7] - Roth IRAs are valuable for managing healthcare expenses, allowing tax-free withdrawals for long-term healthcare costs, which can range from $35,000 to $108,000 annually [8] Group 4: Estate Planning - Roth IRAs serve as effective tools for generational wealth transfer, as they do not have required minimum distributions during the owner's lifetime, allowing for continued tax-free growth [9]

Core Points - The new SALT deduction limit has increased from $10,000 to $40,000, with a gradual annual increase until 2029, reverting to $10,000 in 2030, and phasing out for adjusted gross incomes over $500,000 [2][3] - Households with incomes between $500,000 and $600,000 may experience a significant tax burden due to the phaseout, leading to an effective tax rate increase of up to 30% [3][4] - The effective tax rate for incomes above the $500,000 limit could reach as high as 45.5% due to the SALT deduction changes [4] Tax Strategies - High-net-worth investors can mitigate the impact of the SALT torpedo by keeping their taxable income below the $500,000 threshold [5] - Strategies to reduce taxable income include avoiding mutual funds in favor of tax-efficient ETFs, which typically do not distribute year-end capital gains [6] - Investing in commercial real estate can provide tax efficiencies through 1031 exchanges, allowing deferral of capital gains taxes when reinvesting [7]

Core Concept - The "buy, borrow, die" strategy is a wealth preservation technique utilized by ultra-high-net-worth individuals, allowing them to buy appreciating assets, borrow against them for liquidity, and pass on the assets tax-free upon death [4][5][6]. Group 1: Strategy Overview - The strategy involves three main steps: purchasing appreciating assets, borrowing against these assets to access liquidity without triggering capital gains tax, and passing the assets to heirs at death [3][4]. - In the US, the "step-up in basis" rule allows heirs to inherit assets at current market value, eliminating original capital gains liability [3][10]. - The strategy has been popularized in the US and is credited to Prof Edward McCaffery, who introduced the term in the 1990s [2][5]. Group 2: US Example - An example illustrates that if an individual buys shares worth $500,000 and they appreciate to $10 million, borrowing against the shares allows access to funds without incurring capital gains tax [7]. - Upon death, heirs inherit the shares at the appreciated value of $10 million, with no capital gains tax liability due to the step-up basis [8]. Group 3: UK Comparison - The "buy, borrow, die" strategy faces challenges in the UK due to inheritance tax, which is levied at 40% on estates above £325,000, making it harder to pass wealth tax-free [9][10]. - While capital gains tax is only paid upon sale in the UK, the inheritance tax significantly impacts the ability to transfer wealth effectively [12][13]. - The UK does not offer the same multimillion-pound exemptions as the US, making estate planning more complex for families [13][14]. Group 4: Alternative Strategies - An alternative strategy suggested for the UK is "sell, gift, die," which involves selling assets and gifting them before death to minimize tax liabilities [19]. - This approach requires careful timing, as gifts must be made at least seven years before death to avoid inheritance tax [19][20].