Understanding the Basics: Pre-Tax vs. Roth Retirement Accounts

To start, you need to know the moving parts. The distinction between pre-tax and Roth accounts shapes your financial life for decades.

Pre-Tax Accounts

• How they work: You contribute money before taxes. This shrinks your taxable income right now, slashing the tax you pay in the current year. Investments then grow tax-deferred.

• When is tax paid? Retirement, when you take money out.

• Common types: 401(k), 403(b), 457(b).

• Key terms: Tax deduction on contributions, tax-deferred growth, taxes due on withdrawal.

Roth Accounts

• How they work: You pay taxes on money before contributing. Once inside the account, all growth and qualified withdrawals are tax-free for life.

• When is tax paid? Today, not tomorrow.

• Common types: Roth 401(k), Roth 403(b), Roth IRA.

• Key terms: After-tax contributions, tax-free withdrawals.

Here’s a simple side-by-side:

Pre-Tax Account Roth Account Tax on contribution No (tax deductible) Yes (after-tax) Tax on growth No (tax-deferred) No (tax-free) Tax on withdrawals Yes (ordinary income taxes) No (tax-free if qualified)

Backdoor Roth IRAs show up a lot in high-income circles. This involves making an after-tax contribution (since you don’t qualify for a direct Roth IRA) to a traditional IRA, then converting it to Roth. This strategy doesn’t “spend” your pre-tax dollars, so it stands apart from the pre-tax vs Roth question for workplace accounts. For now, treat it as a separate tool.

Roth Conversions let you voluntarily move money from a pre-tax account to Roth. You pay taxes now, often to take advantage of a better rate, and enjoy tax-free growth later. Unlike a backdoor Roth, this approach will trigger a tax bill, so timing and planning are crucial.

Why This Topic Still Matters for High-Income Physicians

Why does the pre-tax versus Roth debate keep coming up for doctors and other high earners? Because you’re juggling more than just one job. Every patient means another 1099. Every year brings a new wave of tax code changes and advice from people who may not understand your situation.

Most physicians today find themselves in modestly high to very high tax brackets. That makes your retirement account choice directly tied to your current—and future—tax bill. Whether you’re attending a workshop, joining a practice, or getting advice from an online group, this question never goes away because the stakes are real.

A Historical View of Tax Rates and How They Shape Your Planning

To make sense of today’s choices, you need to know how tax rates have changed over time. Michael Kitces’ research—often cited for in-depth, unbiased analysis—shows that the top marginal tax rate in the United States has been a moving target:

• In 1944, it reached as high as 94%.

• Adjusted for today’s dollars, only those earning over $2 million a year would have hit those sky-high rates.

• For the last decade, the top bracket has hovered around 37%, with previous years maxing out at 39.6%.

If you’re a dual-physician household or a specialist, you might think, “Wow, I’d never make that much.” But factor in region, specialty, and years of experience—reaching that threshold is not as wild as the number suggests.

What’s changed since those days of massive brackets? Politics and modern media have made tax brackets far less likely to double overnight. Big changes in tax policy are rare, and the swings are usually just a few percentage points. One party might nudge the top bracket up to 39%, the other chops it back to 37%.

Want a glimpse of just how different things once were? Imagine being a financial planner in 1917! You’d need a paper ledger for every detail, and one mistake could mean a mountain of tax headaches. Today, things are simpler—but only a bit.

Takeaway: Current marginal tax rates are low compared to history. This matters for planning: what you see now is not outlandish compared to what could return, but big shocks seem unlikely.

The Problem With Required Minimum Distributions (RMDs) for Pre-Tax Savings

Here’s the catch with pre-tax savings: Required Minimum Distributions (RMDs). Starting at age 75 (for most still-working physicians), Uncle Sam steps back in. You must pull a set amount of money from your pre-tax accounts each year—even if you don’t need it. Every dollar you withdraw is fully taxable.

Why is this an issue?

• You’ll have built a sizable “tax bomb” by doing all the right things: maxing out your 401(k), 403(b), 457(b), and more.

• At retirement, your income drops—but RMDs can push it back up, hiking your future tax bill.

• For many in the 32-37% bracket, this could mean paying higher taxes on those savings than you’d hoped.

Key facts to remember about RMDs:

• Start at age 75 for most high-income professionals

• Taxed as ordinary income, even if you’d rather leave money invested

• No way to avoid them by simply letting money grow

Picture your retirement as walking into a club, only to find Uncle Sam at the door, demanding his cut before you go in.

Why Pre-Tax Savings Still Make Sense in Your Peak Earning Years

Given the RMD problem, why should you still contribute to pre-tax accounts during your peak-earning years? Simple math and tax rules work in your favor, even for high-income households. Here’s why:

1. Immediate Tax Savings

   • Each dollar you stash pre-tax lowers your taxable income. In the 32-37% bracket, that saves you 32-37 cents on the dollar.

   • For most, this results in thousands, if not tens of thousands, of dollars in tax savings every year.

2. More Money Up Front to Invest

   • Because you save on taxes now, you get to invest a bigger principal—the money has more time to grow.

3. Pre-Tax Accounts Offer Larger Limits

   • Workplace plans, such as a 403(b), 457(b), or Solo 401(k), typically have higher contribution limits than most Roth IRAs.

4. Flexibility With Future Tax Law Changes

   • If you’re paying a high rate now, and rates drop in retirement, it’s a big win. Even if rates stay the same, you’ll often fall into a lower bracket after you retire.

5. Roth Has Value—But Timing is Everything

   • Roth contributions and backdoor Roth IRAs have a place. However, using them too much while your income is high can mean unnecessarily paying top-dollar taxes now.

By saving pre-tax, you can manage your future taxes more deliberately, especially if you plan ahead for retirement. In other words, put your pre-tax contributions first while your tax rate is high. When your income drops (think: retirement), that’s when you bring Roth back in.

The “Golden Window” for Roth Conversions: Your Tax Opportunity of a Lifetime

Think of your working life as a series of peaks, followed by a gentle valley just before the next climb. This “valley” is your golden window—the period after you leave full-time work, before you start drawing Social Security or hit RMD age. During these years, your income drops, meaning you fall into lower tax brackets—sometimes by a margin as big as 15 percentage points.

What does this look like in practice?

• During working years, the blue line (on Kitces’ chart) reflects your high marginal tax rate—say, 37%.

• Stop working, and your ordinary income plummets. You haven’t started Social Security (green line) yet. RMDs (orange line) haven’t forced your hand.

• For a few years, you live in a world where your tax brackets could drop to 22% or even lower.

Timing is everything:

• If you kick off retirement in your late 50s or early 60s and don’t claim Social Security until age 70, you can stretch the golden window wider.

• Every year in this window is a chance to “fill” lower tax brackets via Roth conversions.

Let’s run the numbers:

• Pay 37% tax during working years or wait to convert in your golden window at 22%?

• That’s a 15% savings on potentially hundreds of thousands of dollars—money you keep, not the IRS.

Other factors influence the golden window’s size and savings potential:

• Your spending needs (hard to drop to 10-12% brackets if you like your current lifestyle)

• When you retire (early or late)

• When you start Social Security (wait as long as possible for a bigger window)

In short: Don’t let lower tax brackets go unused between retirement and RMDs.

How Roth Conversions Work and Why They’re Powerful

A Roth conversion means you move money from a pre-tax account (like a traditional IRA or workplace plan) directly into a Roth account. Here’s the play-by-play:

1. Move the Dollars

   • You decide how much to convert from your traditional account to a Roth account.

2. Pay the Taxes

   • The converted amount adds to your taxable income for the year. Yes, you’ll pay taxes on it now.

3. Enjoy Future Tax-Free Growth

   • Once converted, that sum grows tax-free in the Roth account. When you take it out in retirement, it’s tax-free forever.

4. Lower Future RMDs

   • Converted dollars are now Roth—no RMDs for you, no forced withdrawals, and less future tax exposure.

Here’s why this matters:

• In retirement, when you’re in a low bracket, a Roth conversion uses up those low-tax bands. You pay less tax overall.

• The IRS gets paid, just less than if you’d waited and been taxed at your working bracket or RMD rates.

Key tip: Don’t confuse Roth conversions with Backdoor Roth IRAs. A Backdoor Roth is a workaround for high earners who are not directly eligible to fund a Roth IRA. Roth conversions are always a taxable event, and the stakes (and potential savings) are far higher.

Tax Planning Best Practices With Roth Conversions

Roth conversions offer big rewards, but planning is key. Consider these best practices:

• Project Your Income Carefully

  • Before converting, map your income and expenses for the next few years. Factor in Social Security, pensions, and investment income.

• Track IRMAA and Capital Gains

  • IRMAA (Income-Related Monthly Adjustment Amount) raises Medicare premiums if your income tops certain levels. Capital gains can nudge you into higher brackets.

• Have Cash Ready to Pay the Tax

  • Use cash—never your investment portfolio—to pay the conversion’s tax bill. Selling investments can create gains and add to your tax load.

• Watch for Underpayment Penalties

  • If the conversion results in a larger tax bill, ensure you pay quarterly estimates to avoid fines.

• Work With a Financial Advisor and CPA

  • Don’t go it alone. Advisors and accountants can help model scenarios and time conversions with your other income.

Checklist for Roth conversions:

• [ ] Review all income sources for the conversion year

• [ ] Model tax impacts with a professional or software

• [ ] Schedule conversions ahead of RMDs or big income years

• [ ] Maintain a cash cushion to pay taxes

• [ ] Check IRMAA and capital gains brackets

• [ ] Set up quarterly payments if needed

• [ ] Revisit annually—laws and life changes

By doing this groundwork, your Roth conversions can deliver on the promise of real, lasting tax savings.

Building a Tax-Efficient Retirement Portfolio: The “Three Bucket” Plan

As you move through your career, aim to accumulate retirement savings in three distinct “buckets.” This strategy gives you the leeway to respond to tax law changes, spending surprises, and market swings.

Your three buckets:

Type of AccountTaxationExamplesPre-Tax/Tax-Deferred Taxed on withdrawal 401(k), 403(b), 457(b), IRA Roth Tax-free withdrawalsRoth IRA, Roth 403(b) TaxableTaxed only on investment gainsJoint/individual brokerage acct

• Pre-tax accounts grow tax-deferred but generate RMDs.

• Roth accounts let you control withdrawals without extra taxes or RMDs.

• Taxable investments provide flexibility; only gains are taxed, and you can harvest losses or gains as needed.

This model helps you shape your retirement withdrawals to suit your tax reality each year. If tax rates surge or drop, you can pull from the bucket that saves you the most. Roth conversions, especially during your golden window, balance these buckets for maximum flexibility in your later years.

Clearing Up Common Misconceptions About Roth and Pre-Tax Savings

It’s easy to fall for oversimplified advice. Let’s set the record straight.

Myth: Roth is always best because it avoids taxes later.
Reality: Pre-tax is usually better when your current tax rates are high, as with most physicians in their working years.

Myth: Avoid pre-tax accounts—they just lead to big RMD troubles.
Reality: The real problem is not managing your withdrawals and conversions. Pre-tax savings, done right, deliver huge up-front benefits.

Myth: Roth conversions are only for low-income retirees.
Reality: The golden window after retirement gives high-income earners their best shot at big tax savings from conversions.

By understanding when and how to use each tool, you sidestep common traps and save more for yourself.

How Shifts in Tax Law Could Affect Pre-Tax vs Roth Decisions

No one can predict tax legislation with crystal clarity, but some trends hold:

• Tax rates now are at or near historic lows.

• Political realities make 20- to 50-point hikes unlikely. Tweaks of 2% here and there are much more common.

• National deficits or increased spending may cause interest rates to climb, but such moves often take years to have an impact.

Set your plan with the understanding that you may need to adapt. The best strategy: Save pre-tax in peak years (and as laws stand now), but always be ready to review your approach as tax laws evolve.

Keep your savings strategy nimble—review it with a financial advisor or tax professional every year.

Practical Steps for High-Income Physicians to Implement This Approach

If you’re ready to put these ideas into action, here’s your playbook:

1. Maximize Pre-Tax Contributions

   • Use all your pre-tax workplace accounts each year.

2. Build Cash Reserves

   • Set aside extra cash for expected tax bills on future Roth conversions.

3. Monitor Tax Brackets Annually

   • Check your projected bracket for the next year and plan conversions during income dips.

4. Time Social Security and Retirement Age

   • Consider delaying Social Security to widen your golden window.

5. Plan Roth Conversions Carefully

   • Work with your financial advisor and CPA to model how much to convert—ensuring you fill lower tax brackets without tipping into higher ones.

6. Pay Taxes Strategically

   • Arrange quarterly payments for large conversions so you’re not scrambling in April.

7. Track All Thresholds

   • Mind IRMAA, capital gains, and RMD triggers.

8. Adjust as Needed

   • Stay flexible. Update your strategy whenever your income changes or tax laws shift.

By sticking with this routine, you harness the current tax code’s advantages and keep more money for your own goals.

For a deeper look at historical tax rates and case studies, check out Michael Kitces’ blog post on when pre-tax retirement contributions are better than Roth.

Pre-tax savings aren’t just an old-school tactic—they’re still your best bet if you’re in your high-earning years in medicine or any elite field. Yes, RMDs and tax surprises loom, but with the right timing, Roth conversions turn those quirks into golden opportunities.

Build your retirement savings in all three buckets, take full advantage of your lower-tax window after retirement, and keep your planning flexible as laws change. Don’t let the noise distract you—focus on the numbers and strategies that have worked for generations of doctors and professionals.

Own your plan and your future.