Short answer
Traditional 401(k) contributions cut your taxes now and are taxed when withdrawn; Roth contributions are taxed now and qualified withdrawals are tax-free. If your tax rate is the same later, they end equal. A lower retirement rate favours traditional, a higher one favours Roth.
1. The key difference
- Traditional: contributions come out of pre-tax pay, lowering your taxable income today. Withdrawals are taxed as income.
- Roth: contributions are made from after-tax pay. Qualified withdrawals (after age 59½, once the account is at least 5 years old) are free of federal income tax.
2. Worked example: same take-home cost
You are in the 24% federal bracket. Contributing $10,000 to a traditional 401(k) reduces your take-home pay by $7,600, so $7,600 goes into a Roth for the same cost. Both grow at 7% for 30 years (monthly compounding). The traditional balance is $81,165 before tax; the Roth is $61,685.
| Tax rate on withdrawal | Traditional after tax | Roth |
|---|---|---|
| 15% | $68,990 | $61,685 |
| 24% | $61,685 | $61,685 |
| 32% | $55,192 | $61,685 |
This simple example ignores state tax, Social Security taxation and any other income effects, and assumes the tax saved is not invested separately.
3. Rules of thumb
- Lower income now than you expect later: Roth often looks better.
- High income now and lower expected income in retirement: traditional often looks better.
- Unsure: splitting between the two spreads your tax risk.
- Higher earners (prior-year FICA wages above $150,000) must make 2026 catch-up contributions as Roth.
4. Try it
The calculator projects the balance; apply your expected tax rate to it to compare. See also the Roth IRA Calculator and the 2026 limits.
5. Frequently asked questions
Is a Roth 401(k) better than a traditional 401(k)?expand_more
Neither is always better. If your tax rate is the same in retirement, the results are equal; a lower rate later favours traditional and a higher rate favours Roth.
When are Roth 401(k) withdrawals tax-free?expand_more
Qualified distributions after age 59½, once the account has been open at least 5 years, are free from federal income tax.
Can I contribute to both a Roth and a traditional 401(k)?expand_more
Usually yes if your plan offers both, but your combined deferrals are capped at the same annual limit ($24,500 for most workers in 2026).
Does a traditional 401(k) really lower my take-home pay by less?expand_more
Yes. In the 24% bracket a $10,000 contribution reduces take-home pay by about $7,600 because of the tax saved.