Many of us first learned about saving from our parents: open a bank account, set money aside, and someday you can buy that toy you really want. Later, as we entered the workforce, the advice expanded to, build a safety net, save for retirement, and take advantage of tax-deferred accounts like IRAs, 401(k)s, and 403(b)s.
Then the landscape changed. The Roth IRA arrived with the Taxpayer Relief Act of 1997, followed by Roth 401(k) and Roth 403(b) options in 2006. The Small Business Jobs Act of 2010 added the ability to convert pre-tax balances into Roth accounts. Yet many employers, schools included, have been slow to adopt these features, and many families didn’t update their advice to you to reflect the new tools.
Why This Matters Now
Fast-forward to the late 2010s and beyond: countless educators and professionals discovered they had accumulated $2–5 million in tax-deferred accounts as individuals, or $5–8 million as couples. The tax implications of those balances often didn’t become obvious until required minimum distributions (RMDs) began at age 70½, then 73, and soon 75 for those born in 1960 or later.
Many investment advisors focus on portfolio returns, not the long-term tax drag created by large pre-tax balances. That approach may boost assets under management and look good on a net-worth statement today, but it can reduce purchasing power later.
For public school educators, pensions add another layer. Combine a pension, Social Security, and RMDs, and possibly an inherited IRA, and your future marginal tax bracket may be higher than the one you’re in today.
So… Should You Save Pre-Tax or Roth?
It depends!
Your current tax bracket, future income sources, savings capacity, and even your behavioral tendencies all play a role.
If you’re in a low tax bracket (10%–12%)
Roth contributions are often advantageous. You’re paying tax at a low rate today in exchange for tax-free income later.
If you’re in the 22% or 24% brackets
This is the “it depends” zone. A financial planner who understands your full balance sheet can model whether Roth, pre-tax, or a blend creates the most efficient lifetime tax path.
If you’re in the 32%+ brackets
Pre-tax savings often make sense, but not always. There are situations where Roth contributions or conversions still create long-term benefits. The key is designing a strategy that smooths your tax rate over time, rather than letting it spike in retirement.
What if my income changes? Can I switch between Traditional and Roth?
Absolutely! Many educators start their careers in lower tax brackets (often 10%–12%) and later move into department chair, dean, or administrative roles that place them in higher brackets, sometimes 32% or more. Adjusting your savings strategy along the way is not only possible, it’s often wise.
The reverse is also true. Educators who transition into part-time work or consulting as they ease into retirement may find themselves in a lower bracket again. In those years, shifting back toward Roth contributions and/or conversions can be advantageous.
Once your school offers both Traditional and Roth options, you can generally switch between them as often as the plan allows. The key is aligning your contributions with your current tax reality and your long-term tax strategy.
Your Behavior Matters Too
Some educators prefer to minimize taxes today because future tax rates feel unpredictable. Others want to minimize taxes in retirement, even if it means paying more now. Neither instinct is wrong, but both should be understood and incorporated into your plan.
A thoughtful advisor can help you see how your preferences influence outcomes and build a strategy that aligns with both your values and your long-term financial security.
The Power of Tax Smoothing
If there’s one concept educators often wish they had learned earlier, it’s this: Tax smoothing. Tax smoothing strategies intentionally manage your tax rate over your lifetime to minimize total aggregate taxes paid creating an enormous long-term benefit.
And it’s never too late to start!
A Final Thought for Educators
Just as you help students uncover opportunities they can’t yet see, our role as advisors is to help you identify the financial opportunities that may not be obvious, whether in markets, tax strategy, retirement planning, or saving for other goals.
For many educators, shifting from a salary-only mindset to a total compensation mindset, including potentially utilizing both tax-advantaged and tax-free savings throughout your career, is a meaningful step toward long-term financial security.
If you’d like Clear Skies Planning & Wealth Strategies to help you evaluate your retirement plan options or assist your school in adding a Roth retirement option, we’d be honored to support you and your institution.
David Brown was the Chief Financial Officer/Business Administrator at Blanchard Memorial School, Groton School, Alexander Dawson School, Rippowam Cisqua School, and Portsmouth Abbey & School over a 23-year school career. During that time, he advised and/or helped heads and administrators assemble and negotiate benefit packages that would ensure a comfortable life through “end of plan”. For over 10-years Dave has helped his clients effectively plan, save, and invest to and spend appropriately through retirement.
For personalized financial planning and/or investment guidance, contact Clear Skies Planning & Wealth Strategies at www.clearskieswealthplanning.com or directly at 720-833-8611.
Clear Skies Planning & Wealth Strategies, Inc provides advisory services through XY Investment Solutions, LLC, an SEC registered investment advisor. All views included in this communication are subject to change. Please contact Clear Skies Planning & Wealth Strategies to receive a copy of our Form ADV and other disclosure information.