Decision Time – Part I

Advice on 2022 Employee Benefits

October 1 marks the beginning of the fourth quarter when employees will make important decisions regarding employer provided benefits. Two choices in particular can make a profound difference in building an optimal retirement portfolio.

The first decision is whether to choose a traditional pre-tax 401(k) plan or a Roth 401(k) for employee deferrals. Roths are one of the few remaining sources of tax free income in retirement. Record levels of national debt and looming fiscal challenges for the Medicare program lead many to believe that federal, state and Medicare taxation will have to increase. For more on IRMAA Medicare taxation, see my “Financial Planning Considerations” WealthWatch video. When the time arrives to take income from one’s retirement portfolio, having Roth income that will not drive you into higher federal, state and Medicare taxation can lead to an overall  higher post-tax retirement income.

Many individuals habitually direct 401(k) contributions to the traditional pre-tax account and miss a tremendous financial planning opportunity. Even at current contribution limits, a fully funded Roth 401(k) for a 55 year old could grow to $532,000 by age 67 (assuming an 8% return). 

As you provide resources to clients regarding Medicare and retirement health care planning please check out my new Facebook page. As always, I welcome the opportunity to provide an objective, educational Medicare overview with you and your clients.

Next week I will provide information on the second employee benefit decision: Health Savings Accounts. 

The information in this presentation is provided as a general overview. It is derived from the Internal Revenue Code, and other government publications, all subject matter sources reasonably believed to be reliable.  Tax law and the laws governing Medicare/Medicaid are complex and subject to change.  Clients should consult with their attorney and/or qualified tax advisor when making decisions regarding these matters.