WHEN MOST PEOPLE think of Roth IRAs or Roth 401(k)s, they just think "tax-free withdrawals." But that’s only part of the story. Roth accounts can protect you from financial traps that catch many retirees off guard. Here are five key advantages to keep in mind:   1. Tax Rate Protection One thing we can’t control is future tax rates. Did you know that in the 1980s, the highest federal tax rate was 50%? In the 1970s, it was 70%, and in the 1960s, it was as high as 91%. Right now, we're living in an era of historically low tax rates, but that may or may not last forever. We know that in 2025, the federal deficit was ~$1.8 trillion, and raising taxes could be one of the few ways to close that gap. That’s where Roth accounts could be good to diversify with. You pay taxes now and lock in today’s rates, no matter what happens in the future. However, Roth contributions aren’t automatically the best move for everyone. It depends on your marginal tax rate today versus your expected rate in retirement. The expected one is harder to predict, and generally, using today's rates could be a good starting point.

• If you’re in a high bracket now and expect to be in a lower one later, a traditional IRA or 401(k) may save you more.
• If you’re in a low bracket now and expect higher taxes later, a Roth is the smarter move.

It’s not about which account is "better", it’s about which one fits your long-term tax outlook.   2. Social Security Taxation Once you start receiving Social Security income, a portion of your benefits could become taxable, depending on your other income sources. The IRS uses something called “provisional income” to determine how much of your benefits are taxed. It includes:

• Wages and self-employment income
• Traditional IRA or 401(k) withdrawals
• Dividends, interest, and capital gains
• Rental income
• 1/2 of your Social Security benefits

If you’re single and your provisional income is below $25,000, your Social Security is 100% tax-free. Between $25,000 and $34,000, up to 50% of your benefits are taxed. Above $34,000, up to 85% may be taxable. For married couples, those thresholds are $32,000 and $44,000. The key advantage: Roth withdrawals do not count toward provisional income. That means you can tap your Roth IRA or Roth 401(k) in retirement without increasing your Social Security tax bill.   3. Medicare Premiums Once you enroll in Medicare, your Part B and Part D premiums are based on your income. If your income exceeds $106,000 (single) or $212,000 (married filing jointly), you’ll face higher premiums under the IRMAA rules. The more income you have, the higher your premiums. At the top levels, they can almost triple. The good news is that Roth IRA withdrawals don’t count toward that income calculation. So by using Roth funds in retirement, you can avoid Medicare surcharges and keep your healthcare costs lower.   4. Required Minimum Distributions (RMDs) Traditional IRAs and 401(k)s eventually force you to take withdrawals, even if you don’t need the money. Generally, starting at age 73, you must take Required Minimum Distributions (RMDs) each year, and those withdrawals are taxable. They can also push you into a higher bracket, make more of your Social Security taxable, and even raise your Medicare premiums. Roth IRAs have no RMDs during your lifetime. That means you control when to withdraw, not the IRS, allowing your money to grow tax-free as long as you want.   5. Early Withdrawal Penalty When you withdraw from a 401(k) or traditional IRA early, you have to pay a 10% penalty along with taxes on the amount withdrawn (unless an exception applies, such as Rule of 55 or SoSEPP) For Roth accounts, the rules are different. With a Roth IRA, you can always withdraw your contributions (not earnings) at any time, completely tax- and penalty-free. However, the same does not apply to a Roth 401(k). If you withdraw funds from a Roth 401(k) before age 59½, each withdrawal is pro rata, meaning a portion is treated as contributions and a portion as earnings. The earnings portion will be taxed and penalized. This treatment differs once you roll over your Roth 401(k) into a Roth IRA. After the rollover, your payroll contributions and earnings are logically separated. There’s no 5-year waiting period for accessing your rolled-over contributions, because a rollover from Roth to Roth is not a conversion. So, if you want early access flexibility, moving your Roth 401(k) funds into a Roth IRA after leaving your employer can be a smart move. And if your income is too high for a direct Roth IRA contribution, you can still get in through the Backdoor Roth strategy.   Be Smart Roth accounts offer tremendous flexibility and long-term tax benefits, but that doesn’t mean everyone should contribute. The real key is understanding your marginal tax rate today versus what it’s likely to be in retirement. If you’re in a high bracket now, it may make more sense to take the deduction today through a traditional IRA or 401(k), and convert to a Roth later when your income (and tax rate) is lower, a strategy known as a Roth conversion. On the other hand, if you’re in a low bracket now, for example, early in your career or between jobs, paying taxes upfront through a Roth contribution could save you far more over time.   Final Thoughts Roth accounts can shield you from rising taxes, Social Security taxation, Medicare surcharges, RMDs, and early withdrawal penalties, but the biggest advantage comes from using them strategically. Don’t contribute just because "tax-free = good". Run the numbers, compare your current and future rates, and build a mix of pre-tax and Roth savings that gives you flexibility no matter what tax policy looks like in the future. In the end, true tax planning isn’t about predicting the future. It’s about positioning yourself to win under any scenario.   Bogdan Sheremeta is a licensed CPA based in Illinois with experience at Deloitte and a Fortune 200 multinational.

SOME YEARS AGO, the scientist Edward Fredkin identified a quirk of human behavior. When it comes to making decisions, Fredkin found, we tend to allocate our time inefficiently. Suppose, for example, you’re at the grocery store, looking for something basic like paper towels. In a big supermarket, there might be a dozen or more choices. The result: Because there are so many options, it can be hard to choose among them. In the absence of big differences, Fredkin observed, we tend to get bogged down by the details and spend an inordinate amount of time over-analyzing small differences.  In Fredkin’s view, there’s nothing wrong with being a careful consumer. If it takes just a minute to calculate which brand of paper towels is the better deal, there’s nothing wrong with that. The larger concern, in Fredkin’s view, is how consumers approach bigger, more consequential decisions, where the outcome can have a material impact. Because these larger questions are harder to answer—and thus require more mental energy—Fredkin found that people tend to spend less time than they should on them. In many cases, for example, we might procrastinate on a decision because it’s complicated or feels like a black box. That’s Fredkin’s paradox: We tend to spend less time on decisions that can really move the needle and more time on relatively minor questions where the result won’t make much of a difference either way. Fredkin’s paradox presents itself frequently in personal finance. Suppose, for example, you’re selecting investments for your portfolio and are trying to decide whether Fidelity’s new zero-fee mutual funds would be a good choice. To help decide, you could compare the performance of these funds to comparable funds from Vanguard, which offers funds that are very low-cost but not entirely free.  Here’s what you’d find: Over the past five years, Fidelity’s zero-cost total-market fund (ticker: FZROX) has beaten its closest Vanguard competitor (ticker: VTSAX) by about two percentage points. That would seem to make sense. If two funds are essentially the same, but one carries a fee and the other doesn’t, it stands to reason that the no-fee fund would come out ahead. But that’s just one fund.  If you look at another of these no-fee funds, you’ll see precisely the opposite result. Over the past five years, Vanguard’s S&P 500 fund (ticker: VFIAX) has beaten Fidelity’s zero-cost equivalent by a few points. What, then, should an investor conclude about these zero-fee funds? Based on the data, there’s no clear conclusion. And that’s where Fredkin’s paradox kicks in. Without a clear answer, a smart consumer would be inclined to continue researching the question, looking for some difference that might tip the scales. That seems logical. But what Fredkin would tell us is that it simply isn’t worth the effort. Ultimately, the cost difference among all these funds is insignificant, and thus, the results are likely to be almost identical. Informal as it might sound, we should simply choose one and move on. That would free up time to spend on bigger-picture decisions which are likely to make more of a difference. As the end of the year approaches, here are a dozen such questions that may be worth your time:

1. Because it can be complicated, health insurance is an area that’s definitely susceptible to Fredkin’s paradox. But with the annual open enrollment period approaching, it’s worth reviewing the options. The savings could easily be in the thousands.
2. Mortgage rates have been elevated for more than three years, but they’ve ticked down in recent months. If the rate on your mortgage is north of 6.5%, it’s worth looking into a refinance. The good thing about refinancing is that it’s a straightforward, mathematical decision. It just requires a lot of paperwork, and that can be a deterrent. My rule of thumb: If the lower rate will offset the fees associated with the refinance within 12 months, then I think it's worth the effort. With refinancing, you can always revisit it again if rates drop further.
3. Similarly, if you have other loans outstanding, it can be invaluable to shop around.
4. Do you own any actively-managed mutual funds? If they’re in a taxable account, they could be quietly adding to your tax bill. To see if that’s the case, navigate to Schedule D of your 2024 tax return and look for the line that reads “capital gain distributions.” If there’s a meaningful number on that line, find out which funds are driving these gains and ask whether it might make sense to sell them before the next round of distributions, which are typically near year-end.
5. If you’re in your working years, it’s usually safe to assume that your tax rate in retirement will be lower than it is during your peak earning years. If cash flow permits, try to contribute the maximum to a pre-tax account, such as a 401(k) or 403(b). Even if you’re self-employed, there are plenty of easy retirement accounts you can set up for yourself, such as a solo 401(k) or SEP IRA.
6. Does your employer offer other tax-advantaged accounts, such as a health savings account (HSA) or flexible spending account (FSA)? They carry limitations but are worth considering.
7. If you’re in retirement, it’s worth reviewing your strategy for drawing funds out of your retirement accounts. The biggest mistake I see: not taking advantage of the window between retirement and age 73 or 75, when required minimum distributions begin. If your tax rate is very low during these years—especially if you’re in the 10% or 12% bracket—it’s worth considering additional IRA distributions, ideally in the form of Roth conversions.
8. Checking your homeowner’s and auto insurance policies might sound about as interesting as watching paint dry, but they’re worth checking. Be sure that your coverage levels are still sufficient, especially on the liability side, and make sure you have umbrella coverage. If you have jewelry like an engagement ring, be sure it’s scheduled separately. Finally, ask what discounts your insurer offers. Some will knock off close to 10% if you pay in full for the year. If you have teenage drivers, good grades could earn a small discount as well.
9. Are you a homeowner? Cities and towns don’t advertise this fact, but real estate tax assessments can be appealed and negotiated. If you have a basis for arguing that your assessment is out of line with comparable homes in your area, there are attorneys who specialize in preparing these appeals, and they typically work on a contingency fee basis.
10. Be sure that the beneficiaries on your retirement accounts and life insurance policies are in line with your current wishes.
11. Especially if you are single, make sure you have a trusted contact on file with your broker. This gives them someone to reach out to if they have concerns about your wellbeing.
12. Is your estate plan current? While the federal estate tax exclusion is now quite high, at $15 million per person ($30 million for a couple), many states have their own estate taxes with much lower limits. Especially if you’ve moved recently, it’s worth reviewing the structure of your plan to be sure you don’t inadvertently end up paying too much.

Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.