Roth vs Traditional 401(k): Which Should You Choose?

Most 401(k) plans now offer two doors: traditional (pre-tax) and Roth (after-tax). The money is invested the same way. What changes is when you pay tax.

The one-line rule

• Traditional: skip tax now, pay income tax on withdrawals later.
• Roth: pay tax now, take qualified withdrawals tax-free later.

If your tax rate is higher today than it will be in retirement, traditional wins. If it’s lower today, Roth wins. If they’re equal, they come out the same.

Side by side

	Traditional 401(k)	Roth 401(k)
Tax on contributions	Deducted now	Paid now
Tax on qualified withdrawals	Ordinary income	None
Income limit to contribute	None	None
Required minimum distributions	Yes, from 73 or 75	None since 2024
Contribution limit	Shared limit across both	Shared limit across both
Early withdrawal before 59½	Taxed plus 10% penalty, with exceptions	Earnings taxed plus penalty, with exceptions

When Roth usually makes sense

• Early in your career, in a low tax bracket, with income likely to rise.
• If you expect large retirement income from a pension, big traditional balances or rental income.
• If you want flexibility later: tax-free withdrawals don’t raise your taxable income, which can help with Medicare premiums and the taxation of Social Security.

When traditional usually makes sense

• In your peak earning years, in a high bracket.
• If you plan to retire early with low income: you can withdraw or convert traditional money in low-tax years.
• If you need the deduction to afford saving more today.

The early-retirement playbook

Many people pursuing FIRE contribute to traditional accounts while working, then retire early and convert traditional money to Roth in low-income years. Each conversion becomes accessible penalty-free five years later. It captures a big deduction at a high rate and pays tax at a low one.

And what about Roth IRA vs 401(k)?

They aren’t either-or. A common order of saving:

1. Contribute enough to the 401(k) to get the full employer match.
2. Fund a Roth IRA if you’re eligible.
3. Go back to the 401(k) and contribute more.

Not sure? Split it

Nobody knows future tax rates. Putting part of your contributions in each gives you two pots in retirement and lets you choose where each dollar comes from year by year.

Run your own numbers in the Roth vs traditional 401(k) calculator. And whichever you pick, the amount you save matters more than the label.