Retirement · Retirement Planning
Roth vs. Traditional 401(k)
Pay taxes now or later?
How This Calculator Works
The core question this calculator answers is simple to state and hard to guess at intuitively: will you pay less tax overall by paying it now (Roth) or later (Traditional)? It models both paths using the same annual contribution amount, so the comparison isn't distorted by contributing different dollar amounts to each account type.
For the Roth path, it treats your contribution as already taxed at your current marginal rate, then grows that after-tax amount tax-free for every year between now and your retirement age, using your expected annual return. For the Traditional path, it grows the full pre-tax contribution the same way, then applies your expected retirement-year tax rate only at the end, since that's when Traditional withdrawals are actually taxed. Both balances compound annually using the same return assumption, so the only two things that differentiate the outcomes are your current tax rate, your assumed future tax rate, and the number of years money has to grow.
Because the entire result hinges on a rate you can't know for certain — your tax rate in retirement — the calculator also reports the break-even tax rate: the exact future rate at which Roth and Traditional produce identical after-tax outcomes. If you believe your real future rate will land above that break-even point, Roth comes out ahead; below it, Traditional wins. This reframes the decision away from "guess your future tax bracket" and toward "is my future rate more likely to be above or below this one specific number," which is usually an easier judgment call.
What it does not do: it doesn't model required minimum distributions, Social Security taxation interactions, state tax differences, or the tax-bracket-smoothing benefits of partial Roth conversions — it's a straight two-path comparison based on the assumptions you provide.
Worked Example
Say you're 35, plan to retire at 65, contribute the same amount to your 401(k) either way, expect a steady annual investment return, and currently sit in a moderate marginal tax bracket. If you also expect your tax rate in retirement to be noticeably lower than your current rate — a common assumption for people who expect retirement income below their working-years income — the Traditional path tends to come out ahead in this model, because the tax hit on withdrawal is smaller than the tax you'd have paid upfront with Roth.
Now flip one assumption: suppose instead you expect to be in a similar or higher bracket in retirement, perhaps because you'll have significant pension, rental, or investment income alongside withdrawals. In that version, the Roth path tends to win, because you locked in today's (lower, relative to your assumption) tax rate instead of paying a higher rate later. The calculator's break-even tax rate is the dividing line between these two illustrative outcomes — it tells you the exact future rate where the two paths tie, so you can judge which side of that line your real expectations fall on.
Frequently Asked Questions
What if I don't know what my future tax bracket will be?
Nobody knows this with certainty, which is exactly why the calculator reports a break-even tax rate instead of just declaring a winner. Compare that break-even number to your best guess about retirement income sources — pension, Social Security, expected withdrawal amounts, other taxable income — and ask whether your total taxable income in retirement is likely to land above or below that threshold. If you're genuinely unsure, running the numbers with a deliberately low and a deliberately high future-rate guess shows you how much the answer actually changes, which is often more useful than a single point estimate.
Can I contribute to both Roth and Traditional accounts?
Yes — many 401(k) plans let you split contributions between Roth and Traditional in whatever proportion you choose, and doing so is a reasonable way to hedge against not knowing your future tax rate. This calculator compares two pure, all-in strategies to make the underlying trade-off clear, but the real-world takeaway is often "split it" rather than "pick one" if you want to reduce how much the outcome depends on getting the future-rate assumption right.
Does my current income affect which option is better?
Yes, indirectly — your current marginal tax rate is one of the two rates being compared, so the higher your current bracket, the more expensive it is to pay tax now via Roth, which tends to favor Traditional for high earners today (assuming their rate drops meaningfully in retirement). Conversely, if you're early in your career and in a relatively low bracket now, paying tax at today's low rate via Roth is often cheaper than deferring to an uncertain future rate.
Why does the number of years until retirement matter so much?
Because both paths compound the same annual return over the same number of years, a longer time horizon amplifies whichever path is already ahead — it doesn't change which one wins, but it changes by how much. This is also why the decision matters more the earlier you're making it: a 25-year-old choosing between Roth and Traditional has far more compounding years at stake than someone doing the same calculation at 55.
Does this account for employer matching contributions?
Employer matches are typically deposited as pre-tax (Traditional) dollars regardless of which type you elect for your own contributions, and this calculator focuses specifically on comparing your own contribution across the two account types rather than modeling the match separately. The match itself is valuable either way and generally shouldn't factor into your Roth-vs-Traditional decision — the real question is how you want your own contribution dollars taxed.