Pick the account that gives you the tax break in the year with the higher tax rate. If unsure, split.
The core difference
Traditional 401(k) / IRA — contributions reduce this year's taxable income; withdrawals in retirement are taxed as ordinary income. Roth 401(k) / IRA — contributions are made with after-tax money; qualified withdrawals in retirement are tax-free.
The simple rule
Compare your current marginal tax rate to your expected marginal rate in retirement. If today's rate is higher — Traditional. If retirement rate is higher — Roth. If they'll be similar — flip a coin, both work.
When Roth usually wins
- You're early-career with a low current tax rate.
- You expect meaningful income growth.
- You want tax diversification for retirement flexibility.
- You value not having required minimum distributions (Roth IRA).
- You expect to leave money to heirs — Roth passes tax-free.
When Traditional usually wins
- You're peak-earning years with a high current tax rate.
- You expect to retire in a lower-tax state or country.
- You need the current deduction to free up cash flow.
The split strategy
Many people do both — some to Traditional, some to Roth — because future tax law and personal circumstances are uncertain. This gives you flexibility to pull from whichever bucket is more tax-efficient in any given retirement year.
Frequently asked questions
What's a backdoor Roth?
A workaround for high earners above the Roth IRA income limit: contribute to a non-deductible Traditional IRA and immediately convert to Roth. Rules are nuanced — consult a tax professional.
Can I contribute to both?
Yes — combined limits still apply. In 2026, total IRA contributions cap at the annual limit across Roth and Traditional.
Put this into practice
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