Roth vs Traditional 401(k) Calculator

How the math works

Both accounts grow tax-free, but the timing of tax matters:

• Traditional: $10,000 of pay goes in before tax, costing you $7,600 of take-home pay at a 24% tax rate. The full $10,000 grows, and you pay tax on every dollar withdrawn.
• Roth: the same $7,600 of take-home pay goes in after tax, so the Roth receives $7,600. It grows, and qualified withdrawals come out tax-free.

Compared at the same take-home cost, the two end up identical when your tax rate is the same now and in retirement: $10,000 grown and then taxed at 24% equals $7,600 grown tax-free. So whichever rate is lower wins, and the calculator compares them exactly this way.

When Roth wins

• You're early in your career with lower current tax rates
• You expect to be in a higher tax bracket at retirement (or worry about future tax increases)
• You want tax-free legacy for heirs (Roth heirs pay no income tax on inherited Roth)
• You want to avoid Required Minimum Distributions (SECURE 2.0 ended lifetime RMDs from Roth 401(k)s from 2024, 26 U.S.C. 402A(d)(5))
• You're a high earner phased out of Roth IRA (Roth 401(k) has no income limit)

When Traditional wins

• You're in a high tax bracket now (32%+) and expect lower bracket at retirement
• You're maxing out elsewhere and want the immediate tax deduction
• You plan to retire in a state with no income tax (FL, TX, etc.), tax deferral until you're a non-resident of high-tax state
• You need the cash flow now and can invest the tax savings elsewhere

Side-by-side at common tax rate scenarios

$20,000 of pre-tax pay a year for 30 years, paid in monthly at an assumed 7% annual return. The Traditional account gets the $20,000; the Roth gets what's left after today's tax. The winner depends only on the two tax rates:

One case tilts toward Roth even at equal rates: if you'd put the same dollar amount into either account, as when you contribute the maximum, a Roth holds more spendable money, because its balance is already taxed. To keep up, a Traditional saver would have to invest the tax saving (24% of $20,000 is $4,800 a year) in a taxable account, where its growth is taxed. Most people don't invest the saving, which is one reason Roth often comes out ahead in practice.

The 50/50 split: tax diversification

Predicting future tax rates over a 30-40 year horizon is a fool's errand. Congress changes brackets, deductions disappear, and your own income trajectory will surprise you. Most financial planners now recommend a tax diversification strategy: split contributions between Roth and Traditional, often 50/50, so you can choose which to withdraw from in retirement based on tax conditions at that time.

A tax-diversified retiree at age 65 with $500K in Traditional and $500K in Roth has powerful flexibility:

• In low-income years (early retirement, gap years), withdraw from Traditional at the 10-12% bracket.
• In high-income years (consulting, Social Security + pension), withdraw from Roth to keep AGI low.
• For Medicare premium control, Roth withdrawals don't count toward MAGI thresholds that trigger higher Part B premiums.
• For RMD management, Roth 401(k) RMDs were eliminated by SECURE 2.0 starting 2024, while a Traditional 401(k) requires them from age 73 (75 if you were born in 1960 or later). Having Roth assets gives you control over when to draw down.
• For estate planning, heirs inherit Roth tax-free, while Traditional inherited IRAs trigger taxable distributions within 10 years for most non-spouse beneficiaries.

If you're in your 20s or 30s and unsure, default to Roth. If you're in peak earning years (40s-50s) with high marginal rates, default to Traditional. If you're somewhere in between, split it.

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