Shelly Freemole

Sep 19 2018

Wealth Management Spotlight: Roth or Pre-Tax, Part 1 of 2


You’ve probably heard the term “Roth” associated with your 401(k) Plan. Most plans now offer two types of participant contributions. There are deferral contributions made on a pre-tax basis referred to as pre-tax contributions. Then there are deferrals made on an after-tax basis and referred to as Roth contributions. Many people are unsure whether they should contribute to their 401(k) plan on a pre-tax or Roth basis.

Learn more about making contributions on a pre-tax or Roth basis:

Roth contributions to a 401(k) plan are similar to a Roth IRA—both are contributed on an after-tax basis. However, your Roth contributions to your 401(k) plan are not subject to income limits.

Participating on a Roth basis in your 401(k) Plan means taxes are taken before the contribution is invested. Roth contributions and related earnings are not taxed when they are withdrawn as long as they have been invested for at least 5 years and you are over age 59.5 years old.

In contrast, when you contribute to your 401(k) on a pre-tax basis, you are doing so before federal or state taxes are applied, essentially reducing your taxable income for the year. The contributions and the related earnings are taxed when they are eventually withdrawn, ideally in retirement.

Now that you have an understanding of the basic differences between Roth and pre-tax contributions, you should ask yourself: When do you think you’ll be in a higher tax bracket, now or in retirement?

In Part 2 of this series, we will offer some things to consider when making this choice, since it can be difficult to predict what your tax obligations will be in the future.

If you have any questions about the benefits of participating in your plan on either a pre-tax or Roth basis, please feel free to visit us at or email me at

View the complete Roth Series:

  • Wealth Management Spotlight: Roth or Pre-Tax, Part 1 of 2
  • Wealth Management Spotlight: Roth or Pre-Tax, Part 2 of 2
Some trust products and IRA contributions/balances are not a deposit, not FDIC insured by any federal government agency, not guaranteed by the bank, and may go down in value.
Shelly Freemole

About Shelly Freemole

Shelly Freemole is a Trust and Wealth Management Officer at Hills Bank’s North Liberty location on Forevergreen Road. Shelly has been at Hills Bank since June of 2017. She specializes in retirement plan administration and has worked with retirement plans since 2002. Shelly can be reached at 1-800-899-8858 or at

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