“Trick or treat?” is an easy choice. “Traditional or Roth?” may take more thought, but it doesn’t have to be scary. Let’s dive into the differences between Traditional and Roth deferrals.
When you put money into a standard investment account, you get taxed multiple times. Regular investment accounts are funded with money that you’ve already paid income tax on. Any growth on the account is taxed when you withdraw. Retirement accounts (such as IRAs, 401(k)s and 403(b)s) provide tax benefits.
The difference between Traditional and Roth is when you receive those benefits.
Demystifying Deferrals
With a Roth deferral, you pay income tax on your money before you invest it in your retirement plan. Roth deferrals are also called “Post-Tax” deferrals, because you put the money in your plan after you’ve already paid taxes on it. The benefit of Roth is that when you reach retirement age, you are able to withdraw your money tax-free!
Traditional deferrals work the other way around, and these are also referred to as “Pre-Tax” deferrals. With a traditional deferral, the money is placed in your plan before you pay income tax on it. In fact, traditional deferrals into your plan are not classified as earned income and therefore lower your taxable liability for the year.
How do I decide which option is right for me?
Choosing between Traditional and Roth deferrals comes down in part to when you pay income taxes. The question you need to ask yourself when deciding between the two is: “is my income tax rate lower now than it will be during retirement?” Roth contributions are taxed now, with qualified withdrawals tax-free in retirement. Traditional contributions generally reduce your current taxable income, with withdrawals taxed later. Roth may offer greater benefits if you expect a higher tax rate in retirement; Traditional may be more beneficial if you expect a lower rate.
Your current and anticipated tax rates are only part of the decision. Your income, age, retirement goals, time horizon, other retirement assets, plan provisions, and individual tax circumstances also matter. Some people choose both contribution types, if their plan permits. A financial or tax professional can help you determine an appropriate approach.
How do I get started with Traditional or Roth retirement contributions?
By default, all workplace retirement plans allow you to put your money in pre-tax (Traditional). Not all workplace retirement plans allow for Roth, so check with your HR department to see if that provision is available.
If both Roth and Traditional are available, you can defer to one, the other, or even both at the same time. You can have Traditional and Roth money in your account simultaneously, just be aware of which account you’re withdrawing from during retirement, so you don’t get caught with an unexpected tax burden from a Traditional withdrawal. Depending on your circumstances, you may also be able to contribute to a Traditional or Roth IRA. Traditional IRA deductibility and Roth IRA eligibility are subject to applicable IRS requirements, including income-based limitations.
Alternatively, you can open your own Individual Retirement Account (IRA) and defer your money into that plan either Traditional or Roth. Just be aware that the amount that you can defer into an IRA each year is lower than you can defer into your workplace retirement plan. For example, in 2026 you can defer $7,500 into an IRA if you’re under 50 or $24,500 into your workplace retirement plan if you’re under 50.
As always, if you have any questions about the differences between Traditional and Roth, or any questions about retirement plans in general, give us a call! We’re happy to help.
*** This material is provided for general informational and educational purposes only and is not intended to provide individualized investment, tax, or legal advice. Tax laws and retirement plan provisions are subject to change, and individual circumstances vary. Consult your plan administrator and an appropriate tax or financial professional regarding your particular circumstances.
As year-end approaches, it’s a good time to revisit your distribution and giving strategies, especially if you’re subject to a Required Minimum Distribution (RMD). By directing it to a charitable cause, you can make a difference while potentially easing your tax burden.
What You Need to Know About RMDs
Once you turn 73, traditional Individual Retirement Account (IRA) owners are required to withdraw a minimum amount each year (your RMD). These withdrawals are taxed as ordinary income and can push you into a higher tax bracket, which may create retirement planning concerns.
How a Qualified Charitable Distribution (QCD) Can Help
A QCD allows you to donate part or all of your RMD (up to $100,000 annually) directly to a qualified charity, satisfying your distribution requirement while potentially reducing your taxable income.
Here’s how it works:
- Choose a qualified charity recognized by the IRS.
- Notify your IRA custodian of your intention to make a QCD and specify the amount.
- The custodian sends the donation directly to the charity.
Important: The donation must go directly from your IRA. If the money is sent to you first, you may lose the tax benefit
Who Should Consider a QCD?
A QCD may be right for you if you:
- Want to support a charitable organization with your RMD.
- Prefer donating directly to an approved charity rather than establishing a foundation.
- Are seeking to reduce your Adjusted Gross Income (AGI) to manage overall tax exposure.
- Intend to make a larger impact through tax-efficient giving.
Make Your Year-End Strategy Count
Your RMD doesn’t have to be just another withdrawal, it can be an opportunity to align your wealth with your values. RMDs must be taken by December 31 each year.
As the new school year approaches, it is a great time to review your education expenses and make sure you are using your 529 savings plan to its fullest potential. Managing the cost of education can be challenging, but a 529 plan can provide valuable assistance. These tax-advantaged accounts were originally designed to cover college expenses, but their flexibility has grown. Today, 529 funds can be used not only for college but also for K–12 tuition at public, private, and religious schools, as well as expenses related to two- and four-year colleges, trade schools, graduate programs, and some international institutions.
Understanding 529 Plans
To ensure your withdrawal is considered qualified, the distribution must occur in the same calendar year the expense is incurred. Taking a withdrawal at the wrong time could result in taxes and penalties.
Here are some common qualified education expenses:
Tuition and Enrollment Costs
Higher education includes most colleges, universities, and graduate programs that participate in federal student aid programs. Vocational or trade schools include institutions like culinary schools, as long as they are eligible for federal student aid. For K–12 education, up to $10,000 per student, per year, may be used toward tuition at eligible elementary or secondary schools.
Room and Board
On-campus housing expenses are covered, while off-campus housing may qualify only up to the school’s published cost of attendance.
Books and Supplies
Required textbooks, paper, pens, and other course materials are covered, up to the school’s budget for supplies.
Special Needs Services
Equipment and services for students with special needs may qualify, including certain transportation costs.
Technology and Internet Expenses
Technology is often essential for learning, and certain tech-related expenses may also qualify. Computers must be used primarily for educational purposes while the student is enrolled. Software must be required for a specific course, such as those in design or engineering programs. Internet access may qualify in some cases, but it’s best to confirm with your provider and the plan sponsor.
Understanding what your 529 plan covers can help you avoid unexpected expenses and make smarter decisions for the school year ahead. Because rules and benefits can vary by state and school, be sure to consult with your plan provider, the school, or a member of our team to confirm that your intended uses are qualified.
Summer’s Here—Is Your Financial Plan on Track?
Warm weather, longer days, and vacation plans are all part of the summer season. But it’s also a great time to pause and take stock of your financial health. Mid-year check-ins can help ensure you’re on the right path before the year slips away. Here are a few smart questions to ask yourself:
Have your goals changed?
It’s always a good idea to review your credit report for accuracy and watch for signs of identity theft. A strong credit score is a key part of your overall financial picture.
How’s your credit score?
Our team can help you understand how disability insurance fits into your overall financial plan and guide you toward options that offer real security for life’s unknowns. Contact us today to get started.
Are your contributions on track?
Whether it’s a retirement account, emergency fund, or other savings goal, now’s a good time to evaluate your contributions. Could you increase them, even a little?
Does your spending still align with your plan?
If recent market activity or personal expenses have impacted your cash flow, consider whether your budget and spending plans for the rest of the year still make sense.
If any of these questions gave you pause, our team would be happy to talk through them with you. Let’s ensure your financial plan keeps pace with your life, summer, and beyond.
Think you don’t need disability coverage? Think again.
We plan for the unexpected with wills, estate strategies, and life insurance. But many overlook one critical protection: disability insurance—the coverage that protects your income and lifestyle while you’re still living.
According to the Social Security Administration, nearly 1 in 4 Americans in their 20s will experience a disability before retirement age. And yet, most households are financially unprepared for a sudden loss of income. If you’re unable to work, your income may stop—while your expenses continue, or even rise, due to medical and rehabilitation costs.¹
Unlike life insurance, which helps protect loved ones after you’re gone, disability insurance helps protect your daily living and long-term financial goals, such as covering your mortgage or paying for education, when illness or injury prevents you from working.
Disability insurance is issued by participating insurance providers. Policies can vary widely in coverage length, benefit amount, waiting periods, and whether they cover your “own occupation” or “any occupation.” Availability depends on the insurer and your state of residence. Any benefits are based on the financial strength and claims-paying ability of the issuing insurance company.
Is Government Assistance Enough?
Many discover they don’t qualify for Social Security Disability Insurance (SSDI) or that the process is long, complex, and restrictive. Those who do qualify often receive only a fraction of their previous income, which is far below what’s needed to maintain their lifestyle.
This May, during Disability Insurance Awareness Month, take a moment to ask yourself: If disability struck tomorrow, would your income—and your family’s future—be protected?
Now is the time to explore your options.
Our team can help you understand how disability insurance fits into your overall financial plan and guide you toward options that offer real security for life’s unknowns. Contact us today to get started.
1. SSA.gov, 2023
Are you saving for the future? Many people struggle with knowing where to start when it comes to saving. While some seek advice on how to invest or diversify their savings, others are simply unsure of how to begin. If you’re one of those people who feels unsure about how to start saving, you’re not alone. Even individuals with higher incomes often find themselves living paycheck to paycheck, with little to no savings for emergencies or retirement. The good news is that it’s never too late to begin. There are plenty of simple ways to start saving, even in small amounts, that can help improve your financial future without drastically altering your current lifestyle.
When it comes to saving, the issue often isn’t how much money you earn, but rather how much you spend. While unavoidable expenses, such as medical bills or home repairs, can make it difficult to save, for many people, excessive spending is simply a habit that can be changed with little effort. It’s easy to feel overwhelmed by the thought of saving, especially when it seems like a daunting task. However, taking small, manageable steps today can help set you on the path to a secure financial future. Getting started is easier than it seems, and there are simple strategies that can help you begin saving right now.
Tip #1: Put it aside
When considering a major purchase, like a car, or even a smaller one, like a pair of shoes, try pausing for a week or two before making a decision. Give yourself time to reflect and think it through. After that time, if you still feel it’s the right choice, move forward knowing it’s a well-considered decision, not just an impulse buy. If not, skip it. Most of us have made at least one purchase we later regretted—if not more. Imagine if you could get that money back and have it earning interest in your savings account instead. Over time, it could really add up.
Tip #2: Pay yourself first
When you receive your paycheck, you likely prioritize paying your mortgage or rent, your car payment, your insurance, and so on. But somewhere near the bottom of that list is you. Why? It’s probably because you know there’s no immediate penalty for not paying yourself. It’s time to change that mindset and hold yourself accountable. Make saving a priority by putting money into your savings account first, before covering your other expenses. By taking care of yourself upfront, you’ll eliminate any excuses by the end of the month. As long as your monthly bills don’t exceed your income, you can easily set aside a comfortable, consistent amount to save each month.
Tip #3: Shop smarter
In our fast-paced lives, it’s easy to grab a quick snack or coffee when it’s convenient. But if you stop at a convenience store for a 12 oz. coffee every morning, you’re likely spending at least $2.00 daily—and that quickly adds up. Have you ever considered how much you could save by making your own coffee? And what about the power of interest on those savings? If you saved just $600 a year in a basic savings account with a 5% annual return, after 30 years, you could have over $30,000 (after taxes). That’s the impact of consistently saving—even small amounts. Just $2 a day adds up to well over $600 by the end of the year. Start paying attention to those “small” daily expenses—they really can make a big difference over time.
Tip #4: See your destination
They say hindsight is 20/20. Imagine this: if 10 years ago you had started saving just $200 a month in a shoebox under your bed, you’d have $24,000 by now! While you can’t go back in time, you can certainly look ahead. Take advantage of free financial calculators available online and start plugging in numbers to see where your savings could take you in 20-30 years, depending on how much you start saving today. Once you see the potential, saving money might just become your favorite hobby—a fun competition with yourself to see how much you can grow your future net worth.
Tip #5: Ditch the shoebox
Speaking of that hypothetical shoebox under your bed, while the money inside might gather dust, it certainly won’t earn any interest. And while it is unlikely that you’re storing cash in a shoebox, it’s worth considering where and how you’re saving your money. Traditional savings accounts do offer interest, but there are other options that could potentially yield higher returns. You’ve probably heard of money market accounts or certificates of deposit (CDs), but might not be sure exactly what they are or if they’re right for you. It’s important to educate yourself about your options and make informed decisions when it comes to managing your finances.
Saving for the future doesn’t have to be overwhelming. By making small, intentional changes in your spending habits and prioritizing savings, you can start building a more secure financial future today. Whether it’s putting money aside before spending on other expenses, making smarter purchases, or exploring better savings options, every step you take brings you closer to your goals. Remember, it’s not about how much you earn—it’s about how wisely you manage and save your money. Take the time now to plan for the future, and you’ll be amazed at how much you can achieve over time. Start today, and watch your financial well-being grow.
Tax Efficiency in Retirement
As you approach retirement, one of the most important considerations is how to manage your tax liability. While many retirees expect lower taxes in their later years, the reality can be more complex. The way you generate income in retirement—whether from work, retirement accounts, or Social Security—will play a significant role in determining your tax burden. Understanding the different types of retirement accounts, such as pre-tax investments like traditional IRAs and 401(k)s or after-tax options like Roth IRAs, is crucial for making informed decisions about your retirement strategy.
Will you pay higher taxes in retirement? It’s possible, but it will largely depend on how you generate income. Will it be from working? Will it be from retirement plans? And if it does come from retirement plans, will distributions come from pre-tax or after-tax/Roth accounts? Understanding the types of accounts you have and their tax liability is crucial to retirement income and tax planning. Another factor to consider is the role Social Security will play in your retirement. When do you plan to start to take Social Security benefits? If you have a spouse, when do they plan on taking benefits? It’s critical to answer key Social Security benefits questions so you have a better understanding of how it will affect your taxable income.
What’s a pre-tax investment? Traditional IRAs and 401(k)s are examples of pre-tax investments that are designed to help you save for retirement. You won’t pay any taxes on the contributions you make to these accounts until you start to take distributions. Pre-tax investments are also called tax-deferred investments, as the money you accumulate in these accounts can benefit from tax-deferred growth. For individuals covered by a retirement plan at work, the tax deduction for a traditional IRA contribution in 2025 is phased out for incomes between $126,000 and $146,000 for married couples filing jointly, and between $79,000 and $89,000 for single filers.1 Keep in mind that once you reach age 73, you must begin taking required minimum distributions from a traditional IRA, 401(k), and other defined contribution plans in most circumstances. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
What’s an after-tax investment? A Roth IRA is the most well-known. When you put money into a Roth IRA, the contribution is made with after-tax dollars. Like a traditional IRA, contributions to a Roth IRA are limited based on income. For 2025, contributions to a Roth IRA are phased out between $236,000 and $246,000 for married couples filing jointly and between $150,000 and $165,000 for single filers.1 To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawals can also be made under certain circumstances, such as in the event of the owner’s death. Additionally, the original Roth IRA owner is not required to take minimum annual withdrawals.
Are you striving for greater tax efficiency? In retirement, it is especially important – and worth a discussion. A few financial adjustments may help you manage your tax liabilities. Talk with one of our professionals to start planning today!
1. IRS.gov, 2025
Cyber Safety Tip: Update
We’ve all been there. You’re scrolling through your phone, computer, or tablet, and a notification pops up.
“Update Me!”
While that isn’t the exact wording, the meaning is the same. Something wants to be updated to the most recent version. But the banner gets in your way, and you tab it to the side, thinking you will get to it later.
Then we forget it.
This doesn’t seem like a big deal. But it turns out updating your programs can be one of the easiest ways to make your life safer in the long run.
Some software updates contain security measures that help patch vulnerabilities that could lead to a cyberattack. They may include safety features that help keep intruders out if your phone is hacked or stolen.
So the next time you get an annoying pop-up asking for an update, take the extra time and get your device up to speed.
It could be the easiest security upgrade you ever have.
PRO TIP: Some antivirus programs can check your device for updates and keep you current (though it may cost extra, so read up before you click).
The Best Laid Plans
Even the most thought-out financial strategy may need to be adjusted for unexpected events, such as changes to your family life or career, or shifts in your family priorities. These are important opportunities for you to connect with our team and ensure that any necessary adjustments are made to accommodate your new or shifting goals.
Some of the most common life events that may prompt a change include:
- New child or grandchild
- Large purchase (home, vacation property, college, etc.)
- Death in the family
- Employment changes (retirement, new job, promotion, etc.)
- Health and disability
Reasons Not to Write Your Own Will
Ever considered writing your own will? While you can draft a will on your own, there are plenty of reasons why you may not want to go that route. Most people do it to save money, but they may overlook or forget to take care of some important details – details that could eventually cost them much more than the amount they could save. Some of the biggest mistakes include:
Ignoring state law differences. Will kits and online wills may not always take state laws regarding the administration of probate into account. An estate planning attorney can inform you of these state laws; a will kit or website may not.
Not revoking an earlier will. Many wills contain boilerplate language that automatically revokes any preceding will. If you are writing your will totally on your own (some people still do), you may not realize the necessity of such a clause.
Assumptions. If you will property to an heir, what happens if you outlive that heir? What if you will an asset to a friend or relative today and that asset is gone when your will is executed someday? These are important things to contemplate; things that most people who write their own wills have not considered.
Vagueness. Sometimes executors are not given enough power by the language of a will. Sometimes a home will be left to a spouse, but with no one assigned to pay for upkeep of the home during the rest of that widow’s lifetime. Alternate executors are sometimes omitted from wills, and names of nonprofit groups can easily be misstated or misspelled, inviting complication and possible dispute of charitable intent.
Keep in mind this article is for informational purposes only and is not a replacement for real-life advice. You may want to consider consulting a legal professional before making any changes to your estate strategy. Instead of searching the Internet or the Yellow Pages for a stranger, ask your Shepherd Financial wealth advisor for a referral.