Roth vs Pre-Tax 401(k) Contributions

Summary

Episode Summary: Roth vs Pre-Tax 401(k) Contributions

Podcast: Jill on Money with Jill Schlesinger
Date: January 8, 2026
Host: Jill Schlesinger, CFP® (co-host: Mark)
Main Theme:
This episode focuses on helping listeners weigh the choice between Roth and pre-tax 401(k) retirement contributions, alongside real-life listener questions about Social Security, retirement withdrawals, mortgages, and the differences between mutual funds and ETFs. The hallmark Jill on Money style is present: conversational, no-nonsense advice, and an emphasis on both “math and emotions” in financial decisions.

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Key Discussion Points and Insights

1. Retirement Withdrawals & Sustainable Planning ([04:12], [07:39])

Caller: Kathleen

• A retired couple in their 60s living on a mix of Social Security, savings withdrawals, and planned IRA distributions.
• Main question: Is their plan to withdraw $4,500 monthly from an IRA (approx. 5% withdrawal rate) sustainable? Should they drain their cash reserves or adjust withdrawals after an annuity comes due?
• Jill’s advice:
  • Use the $134,000 annuity when it becomes available in April, likely over the next two years, before tapping the IRA heavily.
  • IRA should then be the main withdrawal source until both are on Social Security.
  • Emphasis on keeping a cash buffer for emergencies: “preserve the money that we have in cash accounts as our emergency, sleep at night money.” ([06:44])
  • Avoid paying down too much from cash reserves too soon; use them only if the market tanks, pausing IRA withdrawals in bad years.
• Relationship with Advisors:
  • The couple doesn’t feel a connection with their current wealth manager.
  • Jill: “You don’t want to be dealing your finances with somebody who you don’t feel connected to. This is all your money. Come on.” ([07:47])
  • Recommends finding a new advisor, or at minimum, a second opinion.

2. Should You Pay Off a Low-Rate Mortgage? ([08:35], [10:14])

Caller: Tish

• Age 59, plans to work until 70. Undecided between taking a pension as monthly income or lump sum ($400,000). Has cash, 401(k), and a mortgage at 4%.
• Jill’s firm stance: “Absolutely do not pay off the mortgage.” ([09:21])
  • At 4% interest, it’s better to keep the mortgage and maintain liquidity.
  • Social Security and the pension will cover expenses, mortgage included.
  • “I don’t know why people would pay off 4% loans. It’s completely batty.” – Jill ([10:10])
  • If considering the pension/lump sum, wait until closer to retirement for a decision, and assess if the pension has a cost-of-living adjustment.

3. Switching from Traditional to Roth 401(k): Practical Steps ([11:40])

Caller: Chelsea

• Employer just began offering a Roth 401(k) option. She and her husband (both age 36) are in the 22% tax bracket and already have both Roth and Traditional IRAs.
• Jill and Mark’s guidance:
  • Switch contributions to Roth but start with a small percentage (suggest 4-5%) and see how the new, lower paycheck feels.
  • Gradually increase Roth contributions if it feels manageable.
  • Use the IRS Withholding Estimator if needed, but real-life trial is best for understanding cash flow impact.
  • Mark: “You’ll figure it out. You’re just going to have to tweak with it over probably…the first three months of the year.” ([11:53])

4. Mutual Funds vs. Exchange Traded Funds (ETFs) ([13:02])

Caller: Pamela

• Wants basic advice for UTMA accounts for her kids, and for her own SEP IRA.
• Mark’s simple rule: Big-picture, they’re basically the same except for how/when you trade.
  • “With an ETF, you can trade intraday…with a mutual fund, if you make a transaction, it’s whatever the market closes at that day.” ([13:02])
  • For most investors not trading daily, either is fine.
  • Most important: Choose low-cost indexed funds—mutual fund or ETF. Sometimes expense ratios are near zero! ([14:00])
• Additional tip: If saving for college for kids, consider 529 plans instead of UTMA accounts.

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Notable Quotes & Memorable Moments

• On emotional aspects of money:
  “It’s not that you’re crazy or anything. ... Some of it is financial, some of it is math, but some of it is just getting out of your way and trying to provide you with a pathway.” – Jill ([02:17])

• On advisor fit:
  “You don’t want to be dealing your finances with somebody who you don’t feel connected to. This is all your money. Come on.” – Jill ([07:52])

• On paying off low-rate mortgages:
  “I don’t know why people would pay off 4% loans. It’s completely batty.” – Jill ([10:10])

• Tactical advice on Roth switch:
  “Go up another percent, see how it is. If it’s no big deal, go up another percentage. … You’ll figure it out, you’re just going to have to tweak with it.” – Mark ([11:53])

• On ETFs vs. mutual funds:
  “Big picture is they are basically the same thing… In your case, I would just stick with the mutual fund.” – Mark ([13:02])
  “Sometimes [fees are] even zero now.” – Mark ([14:00])

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Timestamps for Important Segments

• [04:12] Kathleen’s retirement withdrawal planning
• [07:39] The importance of advisor fit
• [08:35] Tish’s mortgage and pension/lump sum question
• [10:14] Discussion on low mortgage rates
• [11:40] Chelsea’s switch from traditional to Roth 401(k)
• [13:02] Mutual funds vs. ETFs explained

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Final Takeaways

• Fit with your financial professional is crucial—don’t settle for someone who doesn’t “get” you.
• Don’t pay off low-rate (sub-5%) mortgages hastily if cash flow is healthy and liquidity is important.
• Experimenting with Roth 401(k) contribution rates gives you real insight into your cash flow before committing.
• Low-cost, diversified funds are key—the form (mutual fund vs. ETF) is less important for long-term investors.
• Always seek a plan that lets you “sleep at night”— financial security is about more than numbers.

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Useful for those seeking to clarify their own retirement, mortgage, or investment choices, this episode offers clear, actionable advice without jargon, delivered in Jill and Mark’s engaging, supportive style.

Transcript

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Welcome to the Jill on Money show. It's Thursday, January 8th, and we are here trying to help you make better, sometimes less bad financial decisions. And it's not that you're crazy or anything. It's just that a lot of these decisions that you are struggling to make, they're emotional. Some of it is financial, some of it is math, but some of it is just getting out of your way and trying to provide you with a pathway. And that's what Mark and I try to do on the show. We try to give you a opportunities to make your financial dreams a reality. And sometimes if you've run into some problems, maybe we can get you on the right track. Whatever's going on in your financial life, we'd love to help you out. All you need to do is go to jillonmoney.com, click the contact us button, write us a note. If you want to join us on the air live, check the box. Mark does everything else. Don't forget to check out our subscription service. It's called Jill on Money Live. And, and Mark very excitedly came up with this idea where we have Jill on Money Live, where you have access to quarterly live webinars. So you join us live every quarter with a cool guest. And then you can look at the and listen to the back catalog of those webinars. There's bonus audio and video content that costs you 45 bucks for the next 12 months. But if you just want to buy one of those webinars, you can do that because Mark's a genius and he's figured out how. So it'll cost you 15 bucks. So you can check it out. Go to Jill on Money Live and you can see how you can just potentially purchase one webinar at a time. Okay, Mark, are you ready to help me do some emails? Because as we record this, I'm just developing a nasty little chest cold, so I'm starting to sound like Brenda Vaccaro. How does that. How's that for a reference that nobody understands?

[Mark]

Not the first time you've used that.

[Jill]

Reference, I know, but there was a time where my voice was so bad that I came onto. We joined a session and you said, we're done, we're done. So we're not there yet. Okay, so, Mark, here is an email from Kathleen who writes, hi, Jill. First, your podcast is amazing and educational and informative. Jill and Mark is what she means. Mark, thank you for the information you share. I'm hoping to get a second opinion for. For our financial plan. We currently work. So there's a wife here. So a couple. They work with a wealth manager, but we don't seem to connect with him at times and it can be frustrating. So wife is retired, 68 years old. I am retired just recently in the fall at age 62. I was going to wait to take Social Security until My full retirement age of 67. We can live very comfortably on 6500 to $7000 a month. Our essential expenses per month. $4800. Come on. I mean. Oh, my goodness. Okay, that gives. So 4800. Anything above that is just fun money. So wife gets 2,400. She. Kathleen has been taking four grand from cash savings to make up the difference. They have $1.2 million in an IRA, $134,000 in an annuity that. That will become available in April of this year. We have $67,000 in a brokerage account. Some of this is cash. Most of this is like their. I think this is more of like their emergency fund. They've got another $30,000 in emergency savings in January. So right now they're going to start drawing $4,500 from the IRA account, about a 5% withdrawal rate and preserve the money that we have in cash accounts as our emergency comma. Sleep at night money. My plan. Guardrails in place and if the market tanks, we could stop the withdrawal from the IRAs, then use the cash buckets. Once I turn 67, we'll have enough money between both Social Security income and May only need another $2,000 a month from the IRAs. No debt. They own their home, they own their car. Is the plan sustainable? And should we drain our cash account? Should we do more on the Iraq? They only have five years here. Okay, so first things first. I think that the. There's $134,000 in some annuity, which I presume this financial person sold you. That's what I'm thinking. So first, before we even do the ira, maybe we should just annuitize that and get it out. So again, that annuity becomes available in April in a few months. So let's first get rid of that for the next two years. And again, I'm presuming this is a retirement account and there'll be some tax liability, but we'll drain that for two years. Step two is look at the retirement, the IRA accounts, the IRA cash accounts, and use those for the next. So let's say we do that 62 to 63, 4 5. So like for the next few years, then you take some combination. But can I tell you one thing that jumped out at me, man? We currently work with a wealth manager, but don't seem to connect with him at times.

[Mark]

Well, yeah, that's the odd.

[Jill]

That's the red flag. Come on. So here's your second opinion. Let's get you a second Opinion for real. I. I want to get you a.

[Mark]

You don't want to be work. You don't want to be dealing your finances with somebody who you don't feel connected to.

[Jill]

Exactly. So I think that is the number one thing to consider. And then you get a second opinion about the plan. But I think generally speaking, if we empty out the annuity, we start tapping the IRA and probably start with 4,000amonth. Let's see where you guys are then. You claim your Social Security. I think the plan will work, but let's get rid of this person. I don't like people who don't, like, connect with you. This is all your money. Come on. Okay. Mark Tisha says you seem to be one of the few who actually say, don't pay off the mortgage now. So I wanted to get your take on our situation because mostly, Tish, there are so many people who have mortgages under the 4% rate, 5% rate. Why are we. Why are we paying this off and leaving ourselves without access to cash? That's the question.

[Mark]

Including Tish, by the way.

[Jill]

Yeah, including tish. She is 59, will work until 70, will take full Social Security at that time and could be about, let's say, 3,600 bucks a month. Have a pension of approximately 3,600. Or a lump sum of 400 grand. 100,000 in cash, $360,000 in after tax. Four hundred and one. That's it. Nothing else. Social Security and pension will cover living expenses. That's good. Of five grand. No other debt. Take the lump sum and invest it. Pay off the mortgage instead of the pension. Stand down for one second. Absolutely do not pay off the mortgage. Absolutely do not pay off the mortgage. Next question was borrow from the 401 now and repay over 10 years. No, don't do that. House is worth 1.3 million. The mortgage is 4%. No. So here's the deal. I don't like the game plan of paying off your mortgage. I love the game plan of working till you're 70 and socking away the money. I don't know about the lump sum. I think we're going to have to decide when the time is closer, what the amount is, and what's going on in the universe. I don't know if this is one of those pensions that has a cost of living adjustment or not. I think we need a tiny bit more information, but we don't really know much more about you. Do you have other people in your life? Do you have kids? Do you have a spouse? What else is going on? But definitely don't pay off the mortgage. How's that, Mark? For an absolute and then we hopefully get her back.

[Mark]

Yeah, I don't see the need. With Social Security and the pension covering all the expenses, including the mortgage, and it's only 4% interest, I don't see the reason to do it.

[Jill]

I don't know why people would pay off 4% loans. It's completely batty.

[Mark]

Probably still going to do it, though.

[Jill]

I don't know. I don't know. Come on. All right, let's see. Chelsea says, my employer just announced that they're going to offer a Roth 401k option finally starting this year. My plan is to immediately switch from Traditional to a Roth. Can you help me determine the contribution conversion from Traditional to Roth? I currently contribute 7% of my gross to the traditional. I keep it at this amount due to the remainder of my budget. My employer matches 4% for both household in the 22% marginal tax bracket. For reference, I have a Roth IRA, has 150,000 traditional IRA with another 50,000. And with my current employer, I've got a traditional 401 worth 19,000. My husband has about $100,000 across various retirement accounts. We're both 36 years old. We'll be working till we're 65. Thank you very much. First of all, Chelsea, 35 years old. Come on. So I think what I would do is this. I don't know what your cash flow really feels like for you guys. Okay. But what my sense is that since you get an employer match of 4%, maybe the first thing I would do is switch to the roth and put 5% in and see how it feels. What do you think, Mark?

[Mark]

That's always the advice. I mean, it will impact your paycheck. Going from pre tax to Roth will definitely impact your paycheck. You'll see a difference.

[Jill]

So start with five or maybe even start with four. Start with the. Let's just start with where they match.

[Mark]

See how it looks, see how it feels for you cash flow wise. If it's no big deal, then go up another percent, see how it is. If it's no big deal, go up another percentage. Just, you know, just get. You'll figure it out. You're just going to have to tweak with it over probably, you know, the first three months of the year.

[Jill]

Right. And we don't know what your spouse is like, what the contribution rate is for the spouse, but I think that should work. And then you go from there. Listen you can use the withholding estimator on the IRS website, which is great, but it's like generalized. It's not like for your specific situation. So I would just do the 4% and let's go a little bit at a time. Okay, last question mark from Pamela. Mutual fund versus exchange traded fund. I never can understand whether it's better to use an ETF or a mutual fund. Here's the situation. 14 and 17 year old children have UTMA accounts. Would an exchange traded fund or mutual fund be better? Second question. My SEP IRA is invested in a target date mutual fund. I want to keep adding to it. Should I add to an ETF or or mutual funds? Mark, can you give us a mutual fund versus ETF quickie?

[Mark]

I mean big picture is they are basically the same thing. There's really only one difference. With an ETF you can trade intraday. You know, I assume, Pamela, you are not doing that. So in your case I would just stick with the mutual fund. That's the only difference. ETFs you can trade intraday with a mutual fund. If you make a transaction, it was where whatever the market closes at that day. That's the price you're getting.

[Jill]

And the most important thing is to choose a low cost indexed or exchange traded fund. That's it. Also one thing, you have a 17 and a 14 year old. Do you have 529 plans also? Are they going to college? Because maybe I would shift out of that UTMA and go into a 529 plan. But again we don't know a lot but not a huge difference for you. Do what is easiest and use a nice low cost. So when I say low cost, it's like a fraction of a percentage point a year. Like 3, 5, 8 basis points a year. It's so easy to do.

[Mark]

Sometimes even zero now.

[Jill]

Yeah, sometimes zero is exactly right. So check that out. If you are scratching your head and you're like oh, what do I do? Do I do an UTMA? A529? Do I use these new accounts offered to the government? I really want to save for college. I'm really thinking about a new retirement plan for me for I'm self employed. Whatever it is, get in touch with us. Go to jillonmoney.com, click the contact us button, write us a note, let us know if you want to come on the air by checking that box. Mark will do everything else. All of our content lives on the website. We've got podcasts here, but we also have another podcast called Money Watch. We have a free weekly newsletter. We got a radio show, videos, resources, all [e-mail] you can subscribe to this show as well as our sister broadcast Money Watch on the Odyssey app or wherever you find your favorite podcast. Don't forget that we are very, very clear about one thing. Every single day you're out in the world, do something nice for someone else. Just do it. You're gonna feel better. That person's gonna feel better. Change your work, Change your wealth. Change your life. Thank you for for listening. We'll talk to you tomorrow.

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It's Draymond Green. I'm back for my 14th NBA season and my podcast, the Draymond Green show is back too. This season I'm breaking down games, reacting to the biggest NBA stories and sitting down with teammates, rivals and culture shapers. And trust me, I'm not holding back on the court or on the mic. Two new episodes every week. New segments, big conversations, real basketball talk for the real hoop heads. Listen to and follow the Draymond Green show wherever you get your podcast. We're back. We're better. Let's get it.