Traditional vs. Roth 401(k): How to Choose (or Use Both)

Compare traditional and Roth 401(k) contributions: when you pay tax, how withdrawals work, required minimum distributions, and how to decide based on your tax rate.

By the Dayob Editorial Team · Updated · 2 min read

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Many 401(k) plans offer two ways to contribute: traditional (pre-tax) and Roth (after-tax). The money goes into the same plan and can be invested the same way. The difference is when you pay income tax.

The basic difference

TraditionalRoth
ContributionsPre-tax; lower your taxable income nowAfter-tax; no deduction now
GrowthTax-deferredTax-free if rules are met
Qualified withdrawalsTaxed as ordinary incomeTax-free (generally age 59½ and account open 5 years)
Required minimum distributionsYes, starting at age 73 for most peopleNot required from Roth 401(k)s since 2024
Contribution limitShared: $24,500 in 2026 across both types

The key question: tax rate now vs. later

  • If you expect a higher tax rate in retirement than now, Roth is usually better: pay tax at today's lower rate.
  • If you expect a lower tax rate in retirement, traditional is usually better: take the deduction now at the higher rate.
  • If you expect about the same rate, the two come out roughly equal, and other factors decide.

Early-career workers in lower tax brackets often favor Roth; peak earners often favor traditional. Nobody knows future tax rates, which is why many people split contributions between the two.

A simple example

Suppose you can set aside $5,000 of pre-tax income and your tax rate is 22% now and in retirement.

  • Traditional: $5,000 invested. If it doubles, you withdraw $10,000 and pay 22% tax, leaving $7,800.
  • Roth: pay 22% tax first, invest $3,900. It doubles to $7,800, withdrawn tax-free.

Same result. Change the tax rate in either period and one pulls ahead.

Other differences

  • Employer matches have traditionally gone into the pre-tax account; recent law allows plans to offer Roth matching, which is taxable to you when contributed.
  • Catch-up contributions: starting in 2026, workers aged 50+ who earned more than $150,000 in FICA wages the previous year must make catch-up contributions as Roth. See catch-up contributions.
  • Tax diversification: having both types gives flexibility to manage taxable income in retirement.

Projecting your balance

The 401(k) calculator projects the pre-tax balance. For a traditional 401(k), remember that withdrawals will be taxed; for a Roth, the projected balance is what you'd keep if withdrawals are qualified.

Educational content only, not tax or investment advice. Consult a tax professional about your situation.

Further reading from official sources

More 401(k) guides

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