Roth vs traditional 401(k): pay taxes now or later?
Both are powerful retirement accounts with the same contribution limits and the same compounding growth — the 401(k) Calculator projects either. The only real difference is when you pay income tax.
| Roth | Traditional | |
|---|---|---|
| Contributions | After-tax (no deduction now) | Pre-tax (lowers taxable income now) |
| Growth | Tax-free | Tax-deferred |
| Withdrawals | Tax-free in retirement | Taxed as income |
| Best if | Your tax rate rises later | Your tax rate falls later |
| Employer match | Always pre-tax (traditional) | Pre-tax |
It comes down to your tax bracket — now vs later
Choose Roth if you expect to be in a higher tax bracket in retirement than today (common for young or early-career savers) — you lock in today’s lower rate. Choose traditional if you expect a lower bracket later (common for high earners near peak income) — you defer tax to a cheaper year.
Why many people split
Future tax rates are unknowable, so tax diversification is popular: hold some of each, giving you flexible, partly tax-free income in retirement. Note the employer match is always traditional (pre-tax), regardless of which you choose for your own contributions.
The verdict
Pick Roth if you’re early-career or expect higher taxes later; traditional if you’re a high earner expecting a lower bracket in retirement. Unsure? Split the difference. Project the balance either way in the 401(k) Calculator.
Frequently asked questions
- Should I choose Roth or traditional 401(k)?
- Roth if you expect a higher tax rate in retirement than now; traditional if you expect a lower one. Young savers often favor Roth; high earners near peak income often favor traditional.
- Does the growth projection differ between them?
- No — the same contributions and returns compound identically. The difference is purely tax treatment: when and whether withdrawals are taxed.
- Is the employer match Roth or traditional?
- Employer matching contributions are traditional (pre-tax) and taxed on withdrawal, even if your own contributions are Roth.
Settle it with your numbers
Free, in-browser calculators for everything above.