MoneyLifeCalcRetirement accounts come in two tax flavors. With a traditional account you skip the tax today and pay it when you take the money out. With a Roth account you pay the tax today and take the money out tax-free. People often assume one of them must be the smarter choice. The honest answer is that it depends on a single comparison.
The one comparison that decides it
What matters is your tax rate today against your tax rate when you withdraw the money. If the two rates are the same, a traditional account and a Roth account leave you with exactly the same amount. It does not matter how many years pass or what the investments earn. If your rate will be lower in retirement, traditional leaves you more. If it will be higher, Roth leaves you more.
A worked example
Suppose you can set aside $7,000 of before-tax income each year for 25 years, and your investments earn 7% a year. Your tax rate today is 22%.
- Traditional: all $7,000 is invested each year and grows to about $442,700. If your rate in retirement is 15%, you keep about $376,332.
- Roth: you pay 22% first, so $5,460 is invested each year. It grows to about $345,340, and all of it is yours.
Traditional wins by about $30,992. Now change only the retirement tax rate. At 22%, both come out at $345,340. At 30%, the Roth wins by about $35,419. You can try your own rates in the Roth vs. traditional calculator.
How to guess your future tax rate
Nobody knows their tax rate decades from now, but you can reason about it.
- Your income will probably be lower. Most people live on less in retirement than they earned while working, and they no longer pay payroll taxes or save for retirement.
- Withdrawals fill the low brackets first. A contribution saves tax at your top rate today. A withdrawal in retirement is spread across the standard deduction and the lower brackets before any of it reaches a higher one, so the average rate on withdrawals is often well below your working-years top rate.
- Large traditional balances push the other way. Required minimum distributions, a pension, and Social Security can stack up to more income than expected. Our Required minimum distribution calculator shows what yours might be.
- Tax law changes. Rates may be higher or lower in the future, and no one can predict which.
When a Roth tends to make sense
- You are early in your career and in a low bracket.
- Your income is unusually low this year.
- You already have large traditional balances and want some tax-free money later.
- You want to leave money to heirs, who can generally withdraw from an inherited Roth without income tax.
- You can afford to contribute the maximum. A Roth dollar is worth more than a traditional dollar because the tax has already been paid, so the same limit shelters more.
When traditional tends to make sense
- You are in your peak earning years and in a high bracket.
- You expect to live on noticeably less in retirement.
- You need the tax saving now in order to afford contributing at all.
The limits for 2026
For 2026, you can contribute up to $7,500 to IRAs, or $8,600 if you are 50 or older. The employee limit for a 401(k) is $24,500, with an additional $8,000 catch-up contribution at 50 or older. These limits apply to your traditional and Roth contributions combined.
Direct contributions to a Roth IRA are limited by income. In 2026 the allowed amount phases out between $153,000 and $168,000 for single filers and between $242,000 and $252,000 for married couples filing jointly. Roth 401(k) contributions have no income limit, so a workplace plan with a Roth option is open to high earners too.
Other differences worth knowing
- Required withdrawals. Traditional accounts require minimum distributions starting at 73 or 75, depending on your birth year. Roth IRAs do not during your lifetime, and since 2024 neither do Roth 401(k)s.
- Access to contributions. You can take out the amount you contributed to a Roth IRA at any time without tax or penalty. Earnings are different: they generally need to stay until you are 59 and a half and the account has been open five years.
- Employer match. Take the full match first, whichever type you choose. It is the best return available to you.
You do not have to pick one
Many people split their contributions. Having both kinds of money in retirement lets you choose which account to draw from each year, taking traditional withdrawals up to the top of a low bracket and Roth money beyond that. It is also a sensible response to not knowing what future tax rates will be.
To see how either choice changes your paycheck today, try the Paycheck calculator, and to see how the savings grow, the Investment projection.