The core retirement question is simple: pay taxes now or later? Use our free 401k vs Roth IRA Calculator to compare Traditional 401k, Roth 401k, and Roth IRA side by side. Also see our 401k Calculator to project balance growth and 401k calculator guide.
The Core Question: Pay Taxes Now or Later?
Traditional accounts give you a tax break today but tax withdrawals in retirement. Roth accounts use after-tax dollars now but grow and withdraw tax-free later. The right choice depends on whether your tax bracket is higher now or in retirement.
Traditional 401k — How It Works
Contributions reduce taxable income now. Your money grows tax-deferred. Withdrawals in retirement are taxed as ordinary income. Required Minimum Distributions (RMDs) begin at age 73 — you must withdraw whether you need the money or not.
Roth 401k — How It Works
Same contribution limits as Traditional 401k ($24,500 in 2026 for under 50). You pay taxes upfront, but withdrawals are tax-free. Since 2024, Roth 401k has no RMDs during your lifetime — a major SECURE 2.0 advantage.
Roth IRA — How It Works
Lower limit ($7,500 in 2026 for under 50) but maximum flexibility — no RMDs, penalty-free withdrawal of contributions, and tax-free growth. Income limits apply: phase-out at $168,000 (single) / $252,000 (MFJ) in 2026.
The Tax Bracket Decision Rule
Lower bracket now than retirement → Roth. Pay taxes at today's lower rate. Higher bracket now than retirement → Traditional. Defer taxes until you're in a lower bracket. Equal brackets → roughly equivalent, but Roth offers tax flexibility and no RMDs.
The Roth 401k RMD Change (SECURE 2.0)
Before 2024, Roth 401k required RMDs at 73 — unlike Roth IRA. SECURE 2.0 eliminated Roth 401k RMDs, removing a key disadvantage. Now Roth 401k and Roth IRA both grow tax-free without forced withdrawals.
When to Do Both — Tax Diversification
Splitting contributions between Traditional and Roth gives flexibility: withdraw from Traditional in low-income years and Roth in high-income years. Many financial planners recommend a mix rather than all-in on one type.
Related: Self-Employment Tax Calculator for freelancers, and W2 vs 1099 tax comparison.
Frequently Asked Questions
Should I choose a Traditional 401k or Roth 401k?
If you expect to be in a higher tax bracket in retirement than you are now, Roth is better (pay taxes now at the lower rate). If you expect to be in a lower bracket in retirement, Traditional is better (defer taxes until the lower rate). If you're unsure, splitting contributions between both provides tax diversification.
What is the 401k contribution limit for 2026?
The 2026 limit is $24,500 for employees under 50 (up from $23,500 in 2025). Workers aged 50-59 and 64+ can contribute $32,500. Workers aged 60-63 can contribute $35,750 under SECURE 2.0's super catch-up provision.
Does Roth 401k have Required Minimum Distributions?
No — as of 2024, Roth 401(k) plans are no longer subject to Required Minimum Distributions (RMDs) during the account holder's lifetime. This change, made under the SECURE 2.0 Act, eliminated a key disadvantage the Roth 401(k) previously had versus the Roth IRA, which has never had RMDs.
What is the Roth IRA income limit for 2026?
For 2026, Roth IRA contributions phase out between $150,000-$168,000 for single filers, and $236,000-$252,000 for married filing jointly. Above these limits, you cannot contribute directly to a Roth IRA but may be able to use the Backdoor Roth strategy.