The Future Tax Hedge: Why Roth Accounts Matter More Than Ever
There’s no shortage of articles and hot takes comparing Roth and Traditional retirement accounts. Most of them walk you through marginal tax rates, retirement income projections, and maybe offer a simple calculator to “optimize” your contributions. But here’s the thing: optimizing the unknowable is a fool’s errand.
At Vermillion Private Wealth, we believe good financial decisions don’t come from solving equations with perfect inputs. They come from embracing complexity and asking better questions. And when it comes to choosing between Roth and Traditional contributions, the real question isn’t just “What’s your tax rate today versus in retirement?” It’s “What future are you preparing for?”
Control What You Can
Roth contributions offer something rare in the world of finance: clarity. You pay your taxes now on dollars you've earned at a rate you know. What’s in the account is yours, fully and forever, regardless of what Congress or future administrations do with tax brackets.
Traditional contributions, by contrast, offer a form of deferral. You get a tax break today, but you’re taking on a partner in your retirement, the IRS, and you have no idea what their cut will be. You’re betting that your tax rate will be lower in the future. That may be a sound assumption for some, but it rests on two pillars: your personal income level and the tax code itself.
The first can be planned for. The second cannot.
The Economic View
Looking at the long-term fiscal landscape, soaring national debt, persistent deficits, and underfunded entitlements, I struggle to imagine a future in which tax rates are lower than they are today. And I can easily imagine one where they’re significantly higher.
This isn’t about partisan politics. It’s about arithmetic. Eventually, the bill for decades of deficit spending comes due. And when it does, raising taxes, especially on future retirees, is one of the few viable options. Why? Because those retirees are, in theory, “wealthy” on paper. Because they already benefited from tax deferral. And because the political class rarely finds itself interested in cutting spending.
In this environment, Roth contributions are a hedge against policy volatility. They offer something Traditional accounts cannot: immunity from future tax hikes on your retirement withdrawals.
Who Should Consider Roth?
While every financial situation is different and individual circumstances should be considered, there are some general patterns:
Younger investors: If you’re 15+ years from retirement, Roth contributions can be especially powerful. Not just because of tax uncertainty, but because of time. A dollar invested today in a Roth has decades to compound and be tax-free.
People in low-to-moderate tax brackets: Paying 12% or even 22% today may be a bargain if rates increase or your income rises.
Those who value simplicity: Roth balances are psychologically “clean.” What you see is what you get, and you won’t spend retirement calculating required minimum distributions or estimating future liabilities.
Traditional Isn’t Wrong. It’s Just Conditional.
There’s a reason Traditional contributions remain a staple in many financial plans. The core argument is straightforward: defer taxes now while in a high-income bracket, and pay them later when you’re (presumably) in a lower one. In theory, this makes perfect sense.
And for certain clients, it still does.
Peak earners may benefit from the immediate deduction. If you’re in the 35% or 37% bracket today but expect to retire in the 22% or 24% range, the math supports deferral.
Business owners who can layer in deductions, depreciation, or qualified business income (QBI) deductions may find Traditional contributions part of a powerful short-term tax strategy.
People close to retirement with limited investment horizons may prioritize current-year tax relief, especially if they plan to draw down retirement funds soon after exiting the workforce.
Beyond that, some advisors make a more sophisticated case:
The reinvestment argument: The tax savings from Traditional contributions are immediate and quantifiable. Redirecting those savings into additional investments — or toward eliminating high-interest debt — can create a compounding advantage that may outperform even a Roth’s tax-free growth.
The liquidity advantage: Freeing up capital today can support other priorities — emergency savings, business opportunities, education planning. Not everything fits neatly into a retirement projection.
Strategic optionality: During the “gap years” between retirement and Required Minimum Distributions or Social Security, retirees may be able to realize income at effective tax rates far below their peak. With careful planning, Traditional accounts can help smooth tax liability over time.
Tax diversification: Having both Roth and Traditional assets creates flexibility. Retirees can modulate their taxable income year by year: accessing ACA subsidies, avoiding Medicare surcharges, or minimizing Social Security taxation. An all-Roth strategy lacks that tactical range.
All of these arguments are valid. They deserve serious consideration. But here’s the friction: every one of them assumes a level of control over policy, behavior, and planning that life tends to resist.
Moreover, Required Minimum Distributions can trigger an unexpected tax trap. Many retirees spend their 60s keeping their income low, only to be forced into higher tax brackets in their 70s and beyond. Layer in Social Security and taxable gains, and the result can be an unintentional spike in tax liability, exactly what the Traditional strategy was supposed to avoid.
Then there’s what I call the stealth tax effect, as common deductions disappear in retirement. Mortgages are paid off, dependents are grown, and charitable giving is reduced, resulting in taxable income that may stay flat, but the after-tax bite feels deeper.
And finally, the biggest risk of all: policy volatility. The entire Traditional framework assumes that retirement tax rates will be lower than they are today. That assumption only holds if Congress agrees. And if recent decades have taught us anything, tax code stability is the exception, not the rule.
The Power of a Blended Approach
While I’ve made a strong case for Roth contributions, especially for younger investors, it’s worth emphasizing that this isn’t an either-or decision. Some of the most robust financial plans embrace a bucket strategy, using both Roth and Traditional accounts to create tax flexibility.
Think of it like building a diversified tax portfolio. Roth dollars provide future certainty. Traditional dollars offer present-day benefits. When used together, they allow you to modulate taxable income in retirement, pulling from the account that makes the most sense in a given year. That might mean drawing from Traditional accounts in low-income years and leaning on Roth assets when additional withdrawals would otherwise bump you into a higher bracket or trigger Medicare surcharges.
This kind of flexibility is empowering. It means you’re not locked into one future or one assumption. You’re giving your future self options across economic conditions, policy shifts, and life transitions.
In the End, It’s About Principles
Roth contributions represent a broader principle I try to apply to investing and planning: pay for clarity, not convenience. Pay the tax today. Own what’s yours. Be wary of strategies that defer hard truths in favor of temporary comfort. In a world of ever-changing rules, the ability to lock in today’s certainty may prove to be one of tomorrow’s greatest assets.
Final Thought
While choosing the right account type matters, the most important decision is simply to begin. Starting early trumps optimizing late. The best time to invest isn’t when you’ve perfected your strategy, it’s when you take that first step.
