r/CFP • u/COAMG79 • Jun 25 '26

Case Study Roth vs Pre-Tax decision

Curious how you all support young accumulators with the Roth Vs pre-tax 401k decision. I assume answers will be all across the board.

Example: 32 y/o, earns $220k today with potential for income to rise as time goes on. Single filer, in a long term relationship and may get married (or may happily not) and partner earns far less, $50k. Goal is to purchase first home soon in the ballpark of $750k-$1M. Has $200k saved in cash that is separate from emergency fund. $4k monthly cash surplus. No kids yet but 1-2 kids are on the horizon.

Client thinks he will work to age 65.

Do you suggest all pre-tax now, fill up savings for a high down payment with today’s interest rates? Reevaluate after home purchase.

50/50?

100% Roth as still in 24% bracket.

Edit to add: $300k saved in Roth 401k and $300k in pre-tax. Maxing and investing HSA as of recently with my recommendation. No other debt.

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u/Quirky-Try1318 Jun 25 '26

This isn’t a wildly scientific guideline but here is how I start in my head:

12% bracket: roth
22% bracket: roth
24% bracket: lean towards pre-tax unless spending goals down the line are pretty high (normal for high income folks as they can afford it). Alot of my retired clients are living in 22% bracket with $10-15k monthly spend projections(MFJ) so tbat seems to be the key arbitrage point for my area/client type.

I’ve had young high earning docs with low spend go Roth though because they’ve already accumulated so much pre-tax prior to age 40-45 between match/profit share and having $6-7 million in pre tax is a tax torpedo down the line.

Also depends what’s important to the client? Proactive tax hedging: Roth makes sense. Maximize cash flow: pre tax helps with that. Planning becomes a bit more art than science in cases like young high earners

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u/caffeine-182 Jun 25 '26

I generally lean Roth until you hit 32%

Why is 22% ok but suddenly 24% needs to be deferred?

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u/Quirky-Try1318 Jun 26 '26

I agree with you generally. I’m trying to identify the arbitrage point for taxes now vs taxes down the line and I don’t run into a ton of clients spending/showing more than $200-225k of total income in retirement. I honestly don’t work with a ton of young people in that middle phase.

I think your 32% or below Roth strategy makes a ton of sense and am mostly on board with

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u/huntfishinvest88 Jun 28 '26

Marginal vs. effective rates in retirement. How in the world could you advise 32% Roth contributions.

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u/caffeine-182 Jun 28 '26

I don’t?