When saving for retirement, it’s easy to funnel money into a pre-tax 401(k) plan or individual retirement account without planning for future taxes. Those pre-tax funds, however, can be handy in some cases, experts say.

Often, investors roll pre-tax 401(k) accounts into traditional IRAs, and the withdrawals in retirement trigger regular income taxes, depending on your tax bracket. 

“Your IRA is an IOU to the IRS,” certified public accountant Ed Slott said during a session last week at the Horizons retirement planning conference in Coronado, California.  

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With uncertain future tax rates, Slott pushes for savings in after-tax Roth accounts, which won’t incur taxes in retirement. He also likes to use Roth conversions.

Roth conversions move pretax or nondeductible IRA funds to a Roth IRA, which can kick-start tax-free growth after an upfront tax bill. 

However, there are scenarios where keeping some money in your pre-tax IRA makes sense, Slott said. 

Certified public accountant Jeff Levine agreed. He told CNBC he prefers some “dry powder” — pre-tax money in retirement accounts that can be strategically withdrawn for planning opportunities.

By comparison, “you’ve already paid your tax bill” with after-tax Roth accounts, he said.

A 2022 research brief from the Department of Health and Human Services found 56% of Americans turning 65 that year will develop a condition that requires long-term care services.

Whether it’s in-home health aids or assisted living facilities, long-term care expenses are rising, according to Genworth’s annual survey. 

But the medical expense deduction could help offset those costs, according to Levine. For 2025, you can claim the tax break for expenses that exceed 7.5% of your adjusted gross income for the year.

If you itemize tax breaks, the deduction reduces the amount of your income subject to tax. That means part of the medical expense deduction could be lost if your income is too low.

“You wipe it out,” Levine said.

But that issue could be solved with a large pre-tax IRA withdrawal in the year of high long-term care expenses, which boosts your adjusted gross income for that year, he said.

Slott was referring to qualified charitable distributions, or QCDs, which are direct transfers from an individual retirement account to a non-profit organization. You must be age 70½ or older to qualify for a QCD.

While there’s no tax deduction for a QCD, the transfer is excluded from your income, meaning it won’t boost your adjusted gross income.  

If you want to leave assets to charity and adult children after death, pre-tax IRAs are less attractive for your heirs because they must follow the “10-year rule,” and empty accounts within 10 years of the original owner’s death.

The Federal Reserve is expected to hold interest rates steady at the end of its two-day meeting next week, despite some encouraging news on inflation. 

Although inflation receded last month, an escalating trade war threatens to cause prices to rise on a wide range of consumer goods going forward.

“This is likely just the beginning with tariffs on Europe and universal ones to follow suit over the coming weeks,” Andrzej Skiba, head of U.S. fixed income at RBC Global Asset Management, said in an email. “This will be inflationary, and the Fed won’t likely be able to cut rates in this environment.”

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The federal funds rate sets what banks charge each other for overnight lending, but also affects many of the borrowing and savings rates Americans see every day.

“Consumers are stretched and stressed,” said Greg McBride, chief financial analyst at Bankrate.com.

Once the federal funds rate comes down, consumers may see their borrowing costs decrease across a variety of consumer debt such as auto loans, credit cards and mortgages, making it cheaper to borrow money. 

But even with the Fed on the sidelines for now, households could see some relief. Already, rates for mortgages, auto loans and credit cards are edging lower. Still, these rates remain relatively elevated compared to recent highs, with credit card APRs down only slightly from an all-time record. 

Here’s a look at where consumer borrowing costs stand.

Worries about a possible recession and increased uncertainty over President Donald Trump‘s tariff plans have soured consumers’ outlook and dragged down rates, according to the Mortgage Bankers Association.

“The good news is that even though the Fed has taken its foot off the gas when it comes to rate cuts, mortgage rates have fallen,” said Matt Schulz, chief credit analyst at LendingTree.

The average rate for a 30-year, fixed-rate mortgage is now 6.77%, down from 7.04% at the beginning of the year, according to Bankrate.

Most credit cards have a variable rate, so there’s a direct connection to the Fed’s benchmark.

But even though the central bank held rates at the last few meetings, the average annual percentage rate has moved lower too — it’s currently, down to 20.09%, from 20.27% at the start of the year, thanks to the lingering effects of last year’s rate cuts. 

“March was the sixth straight monthly decline, but the decreases have slowed as Fed rate cuts get further back in the rearview mirror,” Schulz said of credit card APRs.

In the meantime, credit card debt continues to be a pain point for consumers struggling to keep up with high prices. Revolving debt, which mostly includes credit card balances, is up 8.2% year over year, while nonrevolving debt, such as auto loans and student loans, is 3% higher, according to the Federal Reserve’s latest consumer credit report.

Although auto loan rates are fixed, those payments continue to grow because car prices are rising, in addition to pressure from trade policy uncertainty.

“That’s troubling news for potential car buyers, who are already beset on all sides by high rates and high prices and also face the possibility of tariffs pushing car costs even higher,” Schulz said.

However, auto loan rates have also backed down from recent highs. The average rate on a five-year new car loan is now 7.42%, down from 7.53% in January, according to Bankrate.

Federal student loan rates are fixed, as well, so most borrowers are somewhat shielded from Fed moves and recent economic turmoil.

Undergraduate students who took out direct federal student loans for the 2024-25 academic year are paying 6.53%, up from 5.50% in 2023-24. Interest rates for the upcoming school year will be based in part on the May auction of the 10-year Treasury note.

Private student loans tend to have a variable rate tied to the prime, Treasury bill or another rate index.

On the upside, top-yielding online savings accounts have offered the best returns in more than a decade and currently pay 4.4%, on average, according to Bankrate.

While the Fed holds rates steady, “savings rates really haven’t changed all that much, that’s the good news,” said Bankrate’s McBride. “Savings rates are still at attractive levels and the top yields are still well in excess of inflation.”

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Under the Servicemembers Civil Relief Act, state income tax is based on your “state of legal residence” during active duty, regardless of where you’re stationed. If eligible, it’s possible to keep that residency through your military career.

“Military members tend to have residency in states without an income tax,” such as Florida, Texas or Washington, said CFP Curtis Sheldon, who is also an enrolled agent at C.L. Sheldon and Company in Alexandria, Va. The firm specializes in working with active and retired military members. 

Another unique benefit for service members is tax-exempt “allowances,” Sheldon said.

Generally, pay is taxable, whereas most allowances — such as funds for housing and food — are tax-exempt, he explained.

“They don’t get reported anywhere on the tax return,” and these items don’t show up on Form W-2, he said. “It’s something you have to keep track of yourself.”

When selling a primary residence, many homeowners can exclude a portion of profits from capital gains taxes. 

Generally, the limit is $250,000 for single filers or $500,000 for married couples filing jointly. But you must meet the “use test” by living in the home for two of the last five years before the sale.

That rule is suspended for members of the armed forces, Sheldon said: “You get to stop the clock.”

That means it’s still possible to qualify for the tax break, even without meeting the two-year use test, if you lived elsewhere while on “qualified official extended duty,” according to the IRS. 

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