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Should I Switch to Roth?

Should your retirement contributions be pretax or Roth?

When it comes to retirement accounts, Uncle Sam likes his tax money, but he is somewhat flexible on when you pay him.

If you make a tax-sheltered contribution or if your employer contributes to a retirement plan for you, these contributions are generally pretax. This means you pay taxes on the distributions in retirement, not now.

A Roth contribution is just the opposite in that you pay taxes on the contribution now versus in retirement.*

Use this comparison chart to understand the difference between tax-sheltered and Roth contributions.

So which option is best for you?

The goal is to pay the lowest tax rate possible. If you are currently in a lower tax bracket than you expect to be in retirement, it's smart to make Roth contributions. That way, it's tax-free in retirement.*

For example: Sarah is three years into her first job at a church, earning $36,000, and her husband, Bill, is still in school. They file a joint tax return and are in the 10% tax bracket after deductions. They should consider making Roth contributions. It would be wise to pay the low tax rate now, knowing that they will likely be in a higher tax bracket in retirement.

→ Takeaway: If you believe that your tax bracket will be lower now than it will be in retirement, you may consider switching to Roth.

Now, fast-forward 10 years down the road: Both Sarah and Bill are well into their careers and are bringing in dual income. It is possible that the couple is now in a higher tax bracket and should consider making tax-sheltered contributions and not Roth contributions at this point in their lives. They may have less income in retirement and therefore pay a lower tax rate later on retirement withdrawals.

→ Takeaway: If you know that your tax bracket is higher now than it will be in retirement, then it would be smart to make tax-sheltered contributions and not switch.

Let’s talk strategy:

If you are uncertain as to whether you are in a higher or lower tax bracket now relative to retirement, then one strategy is to split your contributions. Consider making some Roth and some tax-sheltered contributions. No one knows the future of tax rates, so hedging with both sources may be a good option. Adopting a strategy comprised of both Roth and tax-sheltered contributions may be helpful in the long run.

If you are a Minister for Tax Purposes, use this comparison chart before you make a decision. Many ministers choose to make tax-sheltered contributions throughout their careers and have GuideStone® designate a portion or all of their retirement income as housing allowance in their later years.

If you have a unique situation or have further questions, you can always seek out a competent tax advisor to create a plan for your set of circumstances.

If you wish to switch to Roth contributions or even simply increase your savings amount, complete the Retirement Contribution Agreement (RCA) and return it to the person in your organization who manages the payroll.

If you have questions or need help completing your RCA, call us at 1-888-98-GUIDE (1-888-984-8433) between 7 a.m. and 6 p.m. CT Monday–Friday.


*There are rules that must be satisfied to receive a distribution tax- and penalty-free.

This educational information is not intended as legal or tax advice. Ministers or churches with specific legal or tax questions should consult a legal or tax advisor who understands ministerial tax issues.