Roth or Traditional 401(k): which is better for you?

Roth vs Traditional 401(k): the core trade-off

Both accounts shelter your investments from tax while they grow. The only difference is when you pay income tax on the money:

• Traditional 401(k) — contributions are pre-tax, lowering this year's taxable income. You pay ordinary income tax on every dollar you withdraw in retirement.
• Roth 401(k) — contributions are made with after-tax dollars, so there's no deduction today. Qualified withdrawals in retirement are completely tax-free.

If your tax rate were identical in both periods, the two would produce the exact same after-tax result. The decision therefore hinges on whether you expect a higher or lower tax rate in retirement than you face today.

When Roth usually wins

Roth tends to come out ahead when you expect to pay a higher rate later — for example, if you're early in your career and in a low bracket now, or if you believe tax rates will rise. Paying tax at today's low rate and locking in tax-free growth is the winning move. Roth also has no required minimum distributions during the original owner's lifetime after recent rule changes, which helps with estate planning and IRMAA management.

When Traditional usually wins

Traditional tends to win when your current rate is high and you expect to drop into a lower bracket in retirement — common for peak-earning professionals. Deducting the contribution at, say, a 32% rate and later withdrawing at 15–22% captures the spread. The up-front deduction also frees cash you can invest elsewhere or use to contribute more.

A worked example

The defaults on this page — age 35 retiring at 65, a $90,000 salary, 10% contributed ($9,000 a year), a 6% return, a 24% rate today and 18% expected in retirement:

• Traditional: the full $9,000 goes in each year and grows to about $711,500. Taxed at 18% on the way out, that's $583,400 spendable.
• Roth: the same $9,000 of salary is taxed at 24% first, so only $6,840 is deposited. It grows to about $540,800 — and every dollar is yours.
• Traditional wins by roughly $42,700, which is exactly the 6-point rate spread applied to the whole balance.

Flip the rates — 18% now, 24% later — and the answer flips with them by a similar margin. Nothing else in the comparison moves the needle nearly as much, which is why guessing your future bracket well matters more than any other input on this page.

2026 contribution limits

The employee limit applies to your combined Roth and Traditional contributions — there is no separate bucket for each. Employer matching sits on top and is almost always deposited pre-tax, even when your own money is Roth.

Two rules worth knowing that most comparisons skip:

• High earners must make catch-up contributions as Roth. Under SECURE 2.0, if your prior-year wages from that employer exceeded $145,000 (indexed for inflation), your catch-up contributions have to go to the Roth side. For those savers the "choice" is partly made for them.
• A Roth 401(k) has no income limit. Unlike a Roth IRA, which phases out at higher incomes, anyone whose plan offers a Roth 401(k) can use it — which makes it the simplest route to tax-free money for high earners.

The five-year rule on the Roth side

A Roth 401(k) withdrawal is only fully tax-free if it's qualified: you're at least 59½ (or disabled), and the account has satisfied a five-year holding period. Two details catch people out:

• The clock belongs to the plan, not to you. Change employers and roll into a new Roth 401(k), and the new plan generally starts its own five-year clock.
• Rolling to a Roth IRA uses the IRA's clock instead. If you've never held a Roth IRA, opening one — even with a token amount — years before you need it starts that clock running early. It costs almost nothing and can save the tax on earnings later.

Roth 401(k)s also stopped having lifetime required minimum distributions from 2024, which removes the old reason to roll one into a Roth IRA in your seventies.

Reasons to lean Roth that the calculator can't price

• RMDs stack on everything else. A large traditional balance forces taxable income in your seventies whether you want it or not, on top of Social Security and any pension.
• The survivor's bracket. When one spouse dies, the survivor files single — roughly half the bracket widths for similar income. Tax-free Roth dollars are worth noticeably more in that scenario.
• IRMAA and Social Security taxation. Roth withdrawals don't count toward the income that decides how much of your Social Security is taxed or which Medicare premium tier you land in.
• A Roth's limit is effectively larger. $24,500 of after-tax money is worth more at retirement than $24,500 of pre-tax money. If you're already maxing out, Roth quietly shelters more.
• Legal risk is symmetric but timing isn't. A Roth settles your tax bill at a rate you can see today, rather than one a future Congress sets.

Reasons to lean Traditional that the calculator can't price

• Your retirement effective rate is usually lower than your marginal rate today. The deduction comes off the top at 24% or 32%, but withdrawals refill from the bottom — standard deduction first, then 10%, then 12%. Comparing marginal-to-marginal overstates the Roth case.
• The gap years. Retiring before Social Security and RMDs start creates low-income years in which pre-tax money can be converted to Roth cheaply. You can't do that with money already taxed.
• Deductions and credits that phase out with income. Lowering AGI today can be worth more than the headline bracket suggests.
• You'll actually invest the tax saving. The comparison above assumes you do. If the deduction just increases spending, the Traditional case weakens.

When the two look close — and they often do — splitting contributions is a defensible answer rather than a fudge. Having both taxable and tax-free money in retirement is what lets you manage your bracket year by year.

Frequently asked questions