One of the most common retirement questions we hear is deceptively simple:

Should I maximize tax deductions now and pay taxes later, or pay the taxes now avoid taxes in retirement?

In other words:

Should taxes come out of your current income?
Or should you postpone taxes and pay them later, using your retirement income?

There’s no one-size-fits-all answer — but understanding the trade-offs can help you make better decisions today.

Paying Taxes Now: The Roth Approach

When you contribute to a Roth IRA or make Roth-designated contributions inside a 401(k), you’re choosing to pay taxes on that money now.

The benefit?
Qualified withdrawals in retirement are tax-free.

That means no taxes on:

Your contributions
Your investment growth
Your retirement income from those accounts

For many people, that peace of mind is incredibly valuable.

“But I Have More Expenses Right Now…”

A very reasonable thought we hear often is:

“I have kids, a mortgage, and a lot of expenses right now. I’ll have fewer expenses in retirement, so I’d rather pay taxes later.”

That logic makes sense — but there are a few important things to consider.

Three Key Factors to Think About

1. Retirement Expenses Don’t Disappear — They Change

While some costs may go away, others often increase. Healthcare is the biggest example.

According to the Office of the Actuary in the Centers for Medicare & Medicaid Services(CMS), "Individuals age 65 and older spend roughly 2.5 times more on healthcare than working-age adults."
Healthcare costs also tend to rise faster than inflation.

This means many retirees find themselves spending more than expected, especially later in retirement.

2. The Cost of Taxes Is Uncertain

Tax rates today are historically low — but they are not guaranteed to stay that way.

With national debt continuing to grow, it’s entirely possible that:

Future tax rates increase
Required minimum distributions push retirees into higher tax brackets
Retirees have less control over when and how much tax they owe

Paying some taxes now can act as a hedge against that uncertainty.

3. Inflation Matters

Inflation quietly erodes purchasing power over time.

Having tax-free income in retirement can give you more flexibility to:

Cover rising costs
Adjust withdrawals strategically
Avoid being forced into taxable income at inopportune times

It’s Not Either/Or —
Balance Is Key

We’re not saying your entire retirement portfolio should be tax-free.
In fact, **balance is the goal**.
Many employer-sponsored retirement plans (like 401(k)s) allow you to split contributions between:
Pre-tax contributions
Roth contributions
Taking advantage of both can create flexibility later.
You may also consider:
Opening a **Roth IRA**, if eligible
Using a **properly structured Indexed Universal Life (IUL)** policy as a tool for tax-free retirement income (when appropriate)

Our General Guideline

At Northern Monarch Capital, we often recommend that at least 20% of a retirement portfolio be positioned for tax-free income.

This isn’t a hard rule — it’s a starting point.

The right mix depends on:

Your income
Your tax bracket
Your career path
Your retirement goals
Your overall financial picture

We’re Here to Help

Tax planning for retirement can feel confusing — and honestly, it is complex.

If you’re unsure:

Which accounts to prioritize
How much should be Roth vs. pre-tax
Whether additional strategies might make sense for you

Please reach out. We’re always happy to answer questions and help you build a retirement plan that feels clear, flexible, and aligned with your life!

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