Roth vs Traditional IRA and 401(k): Which Should You Choose?

When you save for retirement in an IRA or 401(k), you usually have a choice between a traditional account and a Roth account. Both let your investments grow without yearly taxes. The difference is when you pay income tax: now, or when you withdraw the money in retirement. This guide compares Roth vs traditional IRAs and 401(k)s, explains the rules for each, and shows how to decide which retirement account is right for you.

Traditional accounts: a tax break now

Contributions to a traditional 401(k), and often to a traditional IRA, reduce your taxable income in the year you make them. Your money grows tax-deferred, and withdrawals in retirement are taxed as ordinary income. Traditional accounts are subject to required minimum distributions, which force you to start withdrawing from a certain age, currently 73 for most people.

Whether you can deduct traditional IRA contributions depends on your income and whether you or your spouse have a workplace plan.

Roth accounts: a tax break later

Roth contributions are made with money that has already been taxed, so there is no deduction today. In exchange, qualified withdrawals in retirement, including all the growth, are completely tax-free. Generally, a withdrawal is qualified if you are at least 59½ and the account has been open for five years. Roth IRAs have no required minimum distributions during the owner's lifetime, and since 2024 neither do Roth 401(k)s. You can also withdraw your Roth IRA contributions, though not earnings, at any time without tax or penalty.

Roth IRA contributions are limited for higher earners, but Roth 401(k) contributions are not income-tested.

A simple comparison

Imagine you are in the 22% bracket and can set aside $5,000 of pre-tax income. In a traditional account, the full $5,000 is invested and you pay tax later. In a Roth, you pay $1,100 of tax first and invest $3,900. If both grow tenfold, the traditional account becomes $50,000 and, taxed at 22% on withdrawal, leaves $39,000; the Roth becomes $39,000 tax-free. At the same tax rate, the outcome is identical. The difference comes entirely from whether your tax rate in retirement is higher or lower than today.

How to decide between Roth and traditional

The key question is whether your tax rate is higher now or will be higher in retirement. If you expect to be in a lower bracket in retirement, a traditional account usually wins, because you take the deduction at a high rate and pay tax later at a lower one. If you expect to be in the same or a higher bracket, which is common for younger workers early in their careers, Roth often comes out ahead.

Because nobody knows future tax rates for sure, many people split their savings between both types. Having both gives you flexibility to manage your taxable income in retirement, for example by drawing from the Roth in years when other income is high. Whichever you choose, contribute at least enough to get any employer match, which is free money. See the current 401(k) and IRA contribution limits and the 2026 federal tax brackets.

Other things to consider

Roth accounts can be useful for estate planning, since heirs generally receive withdrawals tax-free, although most non-spouse heirs must empty inherited accounts within ten years. Traditional contributions lower your adjusted gross income today, which can help you qualify for certain credits and deductions. A health savings account can complement both; see our HSA guide.

Frequently asked questions

Is a Roth or traditional IRA better?

Roth tends to win if your tax rate will be the same or higher in retirement; traditional tends to win if it will be lower.

Can I have both a Roth and a traditional account?

Yes. Many people split contributions between both types.

Can I withdraw Roth IRA contributions early?

Yes. Contributions, but not earnings, can be withdrawn at any time without tax or penalty.

Roth vs traditional: which retirement account should you choose?