Roth and traditional retirement accounts differ in when you pay taxes. Traditional contributions are pre-tax. They reduce taxable income now but withdrawals in retirement are taxed as ordinary income. Roth contributions are after-tax with no deduction now, but qualified withdrawals are tax-free.
The right choice depends on whether your tax rate is higher today or expected to be higher in retirement. Neither is universally better; the math is about tax rate arbitrage over decades.
Traditional 401(k) and IRA
Traditional 401(k) contributions reduce W-2 taxable wages. If you earn $80,000 and contribute $10,000, you are taxed on $70,000. That saves roughly $2,200–$2,400 in federal tax at a 22–24% marginal rate.
The 2026 employee deferral limit is $23,500 for 401(k) plans ($31,000 if age 50+). Traditional IRA contributions are deductible only if you (and your spouse) lack a workplace retirement plan, or subject to income limits if you do.
All growth is tax-deferred. You pay ordinary income tax on every dollar withdrawn in retirement, contributions and earnings alike.
Roth 401(k) and Roth IRA
Roth contributions do not reduce current taxable income. A $10,000 Roth 401(k) contribution costs the full $10,000 after tax, but $10,000 invested in Roth grows and withdraws tax-free in retirement.
Roth IRA income limits apply: in 2026, direct Roth IRA contributions phase out for single filers starting around $153,000 MAGI and married filers around $242,000. High earners may use a backdoor Roth IRA strategy.
Roth accounts have no required minimum distributions during the original owner's lifetime (Roth 401k RMD rules have been changing, check current law). This makes Roth valuable for estate planning and tax diversification.
How to choose
Choose traditional when you are in a high tax bracket now and expect a lower bracket in retirement. Early-career workers in the 22% bracket who expect to retire in the 12% bracket benefit from deferring tax.
Choose Roth when you are in a low bracket now or expect higher taxes later. Young workers in the 12% bracket, FIRE planners expecting large traditional account balances, and high earners doing backdoor Roths fit this profile.
Tax diversification, holding both traditional and Roth, gives flexibility to manage taxable income in retirement. Withdraw from traditional up to the top of a low bracket, then pull from Roth for additional spending tax-free.
Employer match always goes traditional
Employer 401(k) matching contributions are always pre-tax (traditional), even if you contribute to a Roth 401(k). The match plus its earnings are taxed on withdrawal.
Contribute enough to capture the full employer match before debating Roth vs. traditional. A 50% match on 6% of salary is an immediate 50% return, better than any tax optimization.
After capturing the match, split contributions between Roth and traditional if your plan allows, based on your tax planning goals.
Model the tax impact
Adjust 401(k) and IRA contribution amounts in the tax estimator to see how traditional contributions change your take-home pay and total tax.
Use the investment growth calculator to project Roth vs. traditional balances at retirement, then the retirement calculator to compare after-tax spending power.