Traditional vs Roth 401(k): Which Should You Choose?
Both accounts hold the same investments. The only difference is when you pay tax, and that difference is worth a lot of money.
The question sounds complicated and the core of it is a single comparison: is your tax rate higher today or will it be higher when you withdraw the money? Everything else, namely investment choices, contribution limits and growth, is identical between the two.
The mechanics
| Traditional 401(k) | Roth 401(k) | |
|---|---|---|
| Contribution | Pre-tax | After-tax |
| Taxable income now | Reduced | Unchanged |
| Growth | Tax-deferred | Tax-free |
| Withdrawals | Taxed as ordinary income | Tax-free |
| Required minimum distributions | Yes, at 73 or 75 | No, since 2024 |
Note the last row. Before 2024, Roth 401(k)s were subject to required minimum distributions even though Roth IRAs were not. The SECURE 2.0 Act eliminated RMDs from Roth 401(k)s starting in 2024, so that gap is closed.
The math, with real numbers
You are 35, earn $100,000, and are in the 22 percent marginal bracket. You contribute $10,000 and will withdraw it at 65. Assume a 7 percent annual return and a 22 percent bracket in retirement.
- Traditional: $10,000 goes in pre-tax. It grows to about $76,100. At withdrawal, after 22 percent tax, you keep $59,400.
- Roth: you pay $2,200 in tax now, so $7,800 goes in. It grows to about $59,400. You keep all of it.
Identical. When your tax rate is the same going in and coming out, the two accounts produce exactly the same result. That is the key insight: the decision is entirely about whether your rate will change.
When traditional usually wins
- You are in your peak earning years and in the 24 percent bracket or above.
- You live in a high-tax state now and plan to retire somewhere with no income tax.
- You expect a lower income in retirement, which is typical: most households replace 70 to 80 percent of pre-retirement income.
- You are close to retirement and want the immediate tax break to fund other goals.
When Roth usually wins
- You are early in your career in the 12 or 22 percent bracket with a long runway of raises ahead.
- You expect a pension, large traditional balances, or significant rental income in retirement.
- You want to reduce required minimum distributions, which force taxable withdrawals later.
- You want to leave tax-free money to heirs, since there is no income tax on inherited Roth distributions for the beneficiary.
The third answer: do both
Splitting contributions between traditional and Roth creates tax diversification. In retirement you can draw from the traditional account to fill the lower brackets, then top up from the Roth without pushing yourself into a higher one. That flexibility is worth real money and it removes the need to predict the future perfectly.
A reasonable default for someone in the 22 percent bracket with decades to go: contribute enough traditional to capture the full employer match, then direct additional savings to Roth as long as your bracket stays at or below 22 percent.
One more consideration: state tax
Traditional contributions avoid state tax as well as federal, and Roth withdrawals are free of state tax if you retire in a state that taxes income. Moving from a high-tax state to Florida or Texas in retirement makes traditional contributions significantly more valuable than the federal math alone suggests.