Contribute pre-tax or Roth in 401-K ?

[RWG1950]

In view of the new 10-year distribution rule for non-qualified beneficiaries, would it be better for a 72 year old taxpayer
(22% Fed 6% State) & unlikely to ever need to access the funds except for RMD's, to contribute pre-tax or to Roth in a solo 401-K ?
Each $10-K into pre-tax would subject the taxpayer to future taxable RMD's but yield an immediate $2,800 in tax benefits.
It would require some pretty decent investment returns in remaining lifetime to overcome the $2,800, if Roth is used.
The taxpayer is already taxed on about 85% of soc sec & would remain under the IRMMA limit either way.
Taxable income to the beneficiaries would not present much of a problem for them.
The Roth would (after 5 years) be tax free to taxpayer, but beneficiaries would still be limited to 10 years of this.
Before the Secure Act it seemed to be an easier call. Was wondering how others see this.
Thanks for comments.

[kathyc2]

It would require some pretty decent investment returns in remaining lifetime to overcome the $2,800, if Roth is used.

Say what? The 2,800 is not a tax savings but merely a deferral or shifting if it goes to a beneficiary. The only way someone at sometime is not going to pay at least 2,800 at sometime in the future is if the 10K investment loses money or the tax rate when disbursed is lower.

What would the tax situation be after he no longer has earned income? Would some SS but not 85% be subject to tax? If so, even if in a 12% marginal rate, the effect would be 22.2% as adding $100 of income would also make $85 more of SS taxable (12 x 1.85=22.2)..

Does he have significant money in non-qualified plans? Is any of the money in retirement account currently Roth?

If his financial situation is such that he will never use the money, he could gift it to heirs to fund their Roth. If their are grandkids he could fund 529's for them especially if the state is one that offers a credit for contributions.

[Rapid Robert]

You have omitted what is another good option: invest in an after-tax brokerage account with minimal taxable dividends (e.g. municipal bonds, and make sure what dividends are paid are qualified for L/T cap gains rate), and let the beneficiaries inherit it. No RMDs, and no tax on the inherited growth, and contributions can still be made even after earnings from work stop.

"It would require some pretty decent investment returns in remaining lifetime to overcome the $2,800, if Roth is used."

There is no "overcoming" the $2,800 in tax (or whatever the recipients future tax rate will yield, probably higher than today's rates). Someone is going to pay it under either scenario.

"Taxable income to the beneficiaries would not present much of a problem for them."

That's an unusual attitude, as many people see having to pay taxes as a personal insult.

The standard advice is nothing new: arrange for the tax to be paid by whoever has (or is going to have) the lowest tax rate.

[RWG1950]

My post should probably have included some of the following :
The taxpayer is new to the 22% Fed bracket. Until 2022 it had been 12%. RMD's from his IRA have pushed him up into 22%.
The beneficiaries are currently in 12% (or lower) marginal tax brackets and are expected to remain so unless marginal rates increase.
The taxpayer's taxable social security and all other income sources are expected to remain at these levels for the duration of his life.
He has a sizable Roth IRA that he continues to fund and also has substantial amount in his Roth 401-K.
Not having to pay the 28% up-front suddenly seems attractive to him. I'm thinking the return he may or may not get on the $ 2,800 may be the wild card here.
The ability to defer tax for many years and then having lower taxed benes inherit & pay the tax might be viewed by some as "overcoming" to a certain extent.
I'm grateful to you all for reading and commenting on the post.

[TaxGuyBill]

unlikely to ever need to access the funds .

I usually try to keep my mouth shut for these questions, and I realize it is questionable if we should actually tell our clients this or not, but ...

Tell him to use the money and spend some time with his family. In my opinion it is absolutely insane to keep saving for something that he will never need. He should enjoy it and let his family enjoy it now.

/gets-off-soap-box/