Ask Linda: Pre-tax versus Post-tax savings

Dear Linda,

Should I save to my pre-tax 401k at work or my Roth IRA? I cannot fully fund both.

Super Saver

Dear Super Saver,


To determine which account you should save to, calculate your tax rate today versus your projected rate in retirement. In general, Roth contributions are made with after-tax dollars and distributed tax-free. The 401k is the opposite - contributions are made with pre-tax dollars and distributions are taxed at ordinary income rates.

If you are in a higher tax bracket now than you will be in retirement, save to the pre-tax 401k. If you will be in a higher tax bracket in retirement, save to the Roth IRA.

There are other considerations:

  • Tax laws can change - We don't know for sure what tax rates will be in the future, therefore, some people prefer to save to both types of accounts to hedge this uncertainty and manage their tax bill in retirement.

  • Employer matching - If your employer offers a match on contributions, save at least enough to the 401k to receive that "free money".

  • Investment options - If your 401k options are limited and expensive, you may choose to invest in the Roth IRA for the ability to create a custom strategy.

  • Income phaseouts - You may make too much money to contribute to a Roth IRA. You can typically get around this with a backdoor Roth IRA, but saving to a 401k may still be the best option for high earners.

  • Flexibility - Roth IRA's and 401k's have different hardship provisions for accessing money earlier than generally allowed (age 59 1/2 with exceptions). Examples relate to education expenses, medical bills and a first time home purchase. Additionally, some 401k's allow you to take out a loan. While this isn't necessarily a good idea, it is an option that is not available to you with the Roth IRA.

Even though one savings vehicle may end up being a better choice for you mathematically, realistically, either is fine as long as you are saving enough. Have a fee-only, fiduciary Advisor develop a custom retirement plan to make sure you are on track.


“Ask Linda” is a monthly personal finance column where the founder of Planning Within Reach, LLC, Linda Rogers, picks one question from her readers and publishes a detailed answer with the hope that it benefits others. If you would like to ask Linda a question, email her or contact her on Twitter.

Credit Lock v.s. Freeze. Don't Get Fooled.


Dear Alicia, 

I have been following your newsletter telling me that credit freezes will now be free. The other day I was watching television and saw an advertisement for Experian's Credit Lock Services. Should I sign up for that instead of the freeze? It sounds exactly the same to me.

Credit Craig

Dear Craig,

Great question! A credit freeze and a credit lock are two separate services. They are very similar but do have distinct differences.

Credit Lock:

Instant lock. The main benefit of a lock versus a freeze is that a credit lock is supposedly easier and quicker. Experian says you can unlock “with a touch of a button,” while TransUnion says you can lock or unlock “with a single swipe or click.” Consumers simply have to sign into their online account to lock or unlock. The three big credit agencies also provide a mobile application.

Additional benefits. When you pay for a lock, it usually comes with added benefits like the ones below. * Credit report monitoring * Social Security Number scanning * 3-Bureau credit scores * Adding additional family members * ID Theft Insurance

Monthly Fee. Experian's lock will cost you $19.99 a month (free for the first 30 days). Transunion's credit lock plus is $19.95 a month and offers the ability to lock your Transunion and Equifax accounts. Equifax is the only one of the big three that still advertises their lock services "are free for life". The only problem is you need to lock all three to be secure. Locking all of the big three would cost you $39.94 a month and would have double coverage of the extra paid services that come with the Experian and Transunion locks.

Not governed, so they sell your data. This is the main pitfall. Because credit locking is not governed, all three locks can have different rules. Make sure to read the terms to know what each company is doing differently. One article brought up that using a lock service gave the companies access to still sell and use your data for marketing, whereas if you have a freeze, it is not allowed.

The marketing tries to convince you it's a better choice. As to why you saw a commercial for the locks, remember anything a for-profit company advertises and spends marketing dollars on, is most likely because it benefits themselves.

Credit Freeze:

Governed by state laws. The best quality of the freeze is that it is a regulated program. Because of this, the freezes will be held to a higher standard and cannot change their terms. This also takes away the companies abilities to use your data for other purposes, such as selling your data to marketers.

100% free in all states. Previously it cost money, depending on the state you lived in, to freeze your credit. After the Equifax breach this year, the government passed a law for freezes to be free in all states as a way to encourage consumers to protect their credit. As of September 21, 2018, you can freeze your credit report for free no matter where you live. The links to the freeze webpages for the three major credit bureaus are below. The big three are not the only bureaus that collect your data. In a distant fourth ranking is Innovis and father fifth is NCTUE (Telecom and Utilities data report). We suggest freezing all five.

Follow these links to set up a freeze for free:

Extra protection. When you initially freeze your credit report, you will get a random personal identification number (PIN). To thaw and re-freeze your credit, you must provide the PIN that was assigned to you. Besides the PIN, they will also ask you to provide identifying information to complete the process. These are two extra layers of needed information that the lock doesn't require. With a lock, if your cell phone, ID, and password got into the wrong hands, they could instantly unlock your credit and create havoc. This makes the freeze much more secure. Just don't forget or lose your PIN. Store your PINs in a safe and secure place.

It can take three days. The general rule for a freeze is that you should allow up to three days to thaw or refreeze, but from our experience, unfreezing can be fast and easy. A TransUnion spokesman says it only takes within 15 minutes to implement a thaw by phone or online. This makes the benefit of the instant lock minimal to nonexistent. Once you find out which credit agency the bank or organization is going to pull from, call or use the online system at that agency to request a "thaw" of your credit report.

Speculation of future issues. The devils advocate perspective is, now that the credit agencies are no longer making money on the freezing services, will the services become harder to obtain or will the waiting period become longer? Could they use this as a tactic to get consumers to use their lock services, where they will have control of the service offering and price? As of now, it is unsure as only a few days have passed since the official "free" date. The only drawback noticed by users so far is that the free freeze isn't promoted on the front pages of their websites and in some instances trying to sign-up for a freeze has caused the sites to crash, making you come back at a later time to try again.

Overall: Both freezes and locks meet the goal of preventing a fraudster from opening new credit in your name. For the most regulated product that is now free for everyone, we still recommend sticking with a freeze.

Lastly, remember that placing a freeze or lock does not prevent you from using existing lines of credit you already have open. This also means they don't help to prevent criminals from gaining unauthorized access to your existing accounts. Even if you freeze or lock, still check to review your credit report regularly and take normal precautions, such as alerts and strong passwords.


Can't get yourself FIREd? You can still have a LIFE.

FIRE stands for financially independent, retire early. The movement continues to grow, with retirees in their 20's through 40's. It has caught on because it is unexpected - we don't picture retirees being so young.

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