The Roth vs. Traditional Choice Is a Tax-Timing Decision
If you’re choosing between a Roth retirement plan and a traditional account, the key question comes down to when it is optimal to pay taxes.
Your income, current tax rate and long-term financial goals are all important when assessing where to contribute your money. Here’s what to consider when choosing between these two types of retirement savings plans.
Roth vs. traditional is mostly about when you pay taxes
Traditional individual retirement accounts (IRAs) and 401(k) plans offer deferred taxation, meaning contributions are made with pre-tax money and grow tax-deferred. You pay taxes when you withdraw from the account later in life. Roth IRAs and 401(k) contributions are funded with after-tax dollars then grow tax-free. You don’t have to worry about paying taxes on qualified withdrawals (including dividends and capital gains) in the future.
The account that makes most sense for you will depend on your specific income, tax situation, potential income in the future and more. And keep in mind that a saver’s tax rate can change based on new rules in Congress, changes to their income, filing status, deductions and other factors. You don’t necessarily have to choose one plan over the other; you can split contributions between Roth and traditional plans for some tax diversification. The IRS created a Roth comparison chart that offers additional information for people who are trying to decide which type of plan to prioritize.
The 2026 401(k) and IRA rules
The contribution limit in 2026 is $24,500 for a 401(k), 403(b) and most 457 plans. The annual catch-up contribution limit is $8,000 for anyone who is 50 years or older. However, if you are between 60 and 63 years old, you qualify for a super catch-up limit of $11,250.
All catch-up contributions must go into a Roth plan if your wages exceeded $150,000. Otherwise, you can choose to put your catch-up contribution in a Roth or traditional plan.
The IRA contribution limit increased to $7,500 in tax year 2026, with a $1,100 catch-up contribution limit for people who are 50 years or older. IRAs currently do not have super catch-up contributions.
How to make the bet when you can’t know your future tax rate
It’s impossible to predict with full certainty what your tax rate will look like within a few decades, but there are some rules of thumb you can use when deciding which account is right for you. Roth contributions can often make sense for low-income years when your tax rate is low. If you are early in your career, transitioning from a job or taking a hiatus, a Roth plan may be right for you.
Traditional contributions may be more valuable during peak earning years. You can defer taxes now and enjoy a lower tax rate when you retire.
You don’t have to stick with one plan or the other for the rest of your life. Many workers contribute to both accounts throughout their careers for tax diversification. That way, you can withdraw some money from a Roth plan and other funds from a traditional plan each year during retirement. This approach maximizes how much you get to take out of your plans while securing the lowest possible taxes.
Social Security, state taxes, Medicare income-related premiums and required minimum distributions (RMDs) are also important to consider when planning your withdrawals.
