Roth vs Traditional 401(k) Calculator

How the math works

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

• Traditional: $10,000 contribution costs $7,600 out of pocket (at 24% tax rate). The full $10,000 grows. At retirement, you pay tax on every dollar withdrawn.
• Roth: $10,000 contribution costs $10,000 out of pocket (no tax deduction). The full $10,000 grows. At retirement, every dollar comes out tax-free.

Mathematically: if your tax rate is the same now and at retirement, Roth and Traditional produce identical net retirement income. The difference is purely a function of whether your tax rate changes.

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 (Roth 401(k) RMDs were eliminated under SECURE 2.0 for 2024+, though current law may still require them for some plans)
• 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

For a $20,000 annual contribution over 30 years at a 7% real return, the after-tax retirement balance depends entirely on what tax bracket you're in at withdrawal:

A subtle wrinkle: the table compares gross contributions of $20K either way. The fair comparison invests the tax savings from the Traditional contribution. A 24%-bracket worker contributing $20K Traditional saves $4,800 in current tax, which could be invested in a brokerage account at the same 7%. That side-pot grows to roughly $487,000, partly closing the gap with Roth. Most workers don't actually invest the tax savings, which is one reason Roth often wins in practice even when the math looks like a tie.

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 Traditional 401(k) requires RMDs at age 73. 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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