Should Clients Clients Halt Pre-Tax 401(k), IRA Contributions?

Ed Slott is a thought leader on taxes and has made a living on IRA thoughts and tax advice related thereto.  For quite a few years he has been beating the drum of “pay taxes or even extra taxes now because the tax bill will inevitably be so much worse in retirement/later on.” At least for my clients, I do not like this train of thought.  Here are my takeaways:

1)    There is an implication by Slott (and others voicing similar opinions) that we will need massive tax increases to either pay down the national debt or to make future interest payments on the accumulated debt to not default.  This may or may not be the way to “solve” our fiscal future, as there are many other possible choices and decisions to make.  Not all roads lead to this determination.

2)    Future tax policy depends on not only the political party in power, but the specifics of the President and Congressional breakdown.  We have no clue who would run for the Republicans next after Trump, just like nobody could reasonably predict with any accuracy who the next Democratic nominee would be.  Clearly, we don’t know the next President nor his/her policies.

3)    Even IF taxes increased markedly in the coming decades, where any given administration draws the line on tax brackets and income levels is not at all set in stone.  We could see volatile changes from one administration to the next, rendering long-term tax planning difficult and sticking to one end or the other of this decision-matrix foolhardy.  Simply put, I can make today’s tax-decisions based on today’s situation at-hand, and that might prove wiser than guessing at tax policy in 2030 or 2040 with my decisions today.

4)    “The bird in the hand is worth two in the bush,” I think applies.  Not that I think taxes are likely to decline in the future, but I definitely get a tax deduction today for investing pre-tax.  If I invest post-tax, I forego today’s deduction- paying more taxes- in exchange for POSSIBLY paying lesser taxes in the future.  This thinking also applies to ROTH conversions, a question I get often.  In short, only young people with small 401k or IRA balances would I typically advocate consider a ROTH conversion.

5)    The perspective Slott and others are taking on this suggestion is “how does family X pay the lowest amount of combined taxes over the next ~30 years.”  Many of my clients are older, and some (like me), don’t have children, so the 30+ year time horizon this analysis implies is not very relevant.  Many of my clients with kids are not worried about the kids’ finances as much as their own, and/or the kids are already doing better than they are financially, rendering the discussion moot.  If I have successful kids and they don’t NEED the money they inherit and they end up paying some extra taxes within the first decade after my death?  So be it.

6)    These articles are generally written to a high-income-earning populace.  If as a married couple you do not make $383,902 or more as taxable income, then every dollar you earn is taxed at 24% or less, according to the 2025 tax tables.  Similarly, a married couple must earn $732,202 to pay the highest 37% marginal tax rate.  (Individual tax brackets are about ½ as generous)  Needless to say, I do not have many clients with these earnings’ amounts, and I would venture to say I have zero retired couples who have such high-class income tax “problems.”

Thank you for reading, and please follow-up with me personally about your specific situation or questions, if this has brought any to mind.