Reckonary / Finance / Roth vs traditional
Roth vs traditional 401(k): at the same tax rate, it's a tie
The argument usually gets settled by how the words sound. "Tax-free growth" beats "tax-deferred growth," so the Roth wins. Then you run both accounts on the same money and something strange happens. If your tax rate is the same on the day you contribute and the day you withdraw, the two finish on the identical dollar — $589,435 either way. Not close. The same. Everything worth arguing about is happening somewhere else.
Is a Roth or a traditional 401(k) better?
If your tax rate in retirement matches your rate today, neither is better — they hand you the same after-tax money. A traditional account comes out ahead when your retirement rate is lower than today's. A Roth comes out ahead when it's higher. That one comparison — today's rate against tomorrow's — decides it, right up until you hit the yearly contribution limit, which is a wrinkle we'll come back to.
Here's the case laid out. You set aside $8,000 of salary a year for 30 years, invested at 7%. For the comparison to mean anything, both accounts have to start from the same pre-tax paycheck, so that's what we hold equal: $8,000 of gross pay, and the sole difference is when the tax collector takes a slice.
| Traditional | Roth | |
|---|---|---|
| Pre-tax salary set aside each year | $8,000 | $8,000 |
| Tax paid on it now (22%) | $0 | $1,760 |
| Actually invested each year | $8,000 | $6,240 |
| Balance after 30 years at 7% | $755,686 | $589,435 |
| Tax due on withdrawal (22%) | $166,251 | $0 |
| What you keep | $589,435 | $589,435 |
The traditional column looks like it won by $166,251 right up until the last row. That extra money was never going to stay yours. You were investing the government's share alongside your own for 30 years, and at the end you hand it back.
Why do the two come out exactly equal?
Because growth and tax are both multiplication, and multiplication doesn't care what order you do it in. Thirty separate dollars — one put in each year, growing at 7% — come to $94.46 between them by the end. That $94.46 is the multiplier sitting under both columns of the table. And a 22% tax leaves you 78 cents of every dollar.
So the traditional account does 8,000 × 94.46 × 0.78, and the Roth does 8,000 × 0.78 × 94.46. Same three numbers, same product — the $589,435 in the table, give or take a few dollars of rounding on that multiplier. Think of the tax as a slice cut off a loaf and the growth as the oven. Cut the slice before baking or after, and the piece left on your plate is the same share of the same loaf.
This is why "tax-free growth" is a slippery selling point. It's true, and you paid for it up front by putting less money in. The traditional account's growth isn't taxed along the way either — it's taxed once, at the end. Neither one sends you a tax bill each year the way dividends and realized gains do in an ordinary brokerage account. What actually differs is which year's tax rate applies.
So what does break the tie?
The gap between your two rates, and nothing else in this comparison. Same $8,000 a year, same 30 years, same 7%, same 22% rate today — the only thing changing down this table is the rate you pay in retirement.
| Tax rate in retirement | Traditional keeps | Roth keeps | Winner |
|---|---|---|---|
| 12% (10 points lower) | $665,004 | $589,435 | Traditional by $75,569 |
| 22% (same as today) | $589,435 | $589,435 | Dead tie |
| 24% (2 points higher) | $574,322 | $589,435 | Roth by $15,114 |
| 32% (10 points higher) | $513,867 | $589,435 | Roth by $75,569 |
Look at the top and bottom rows. Ten points lower is worth $75,569 to the traditional account; ten points higher is worth $75,569 to the Roth. The same figure, mirrored — because the gap between the two accounts is simply the pre-tax balance multiplied by the difference in rates.
That gives you a shortcut worth remembering. Each percentage point of difference between your rate now and your rate later is worth one percent of your pre-tax balance — here, $7,557 a point. Two points up, as in the 24% row: $15,114. Notice too that the Roth column never moves. Its tax bill was settled decades ago, and that is the clearest thing a Roth buys you: certainty about the rate.
The two sliders below start on the same rate, which is why the bars begin at the identical length. Pull either one away from the other and watch the gap open at that same one-percent-per-point rate.
Both accounts start from the same $8,000 of pre-tax salary a year for 30 years, growing at 7% — the traditional one is taxed at the end, the Roth at the start. The shaded part of each bar is what you keep; the empty part is tax:
The rates match, so the two accounts finish on the same dollar: $589,435 either way. Growth and tax are both multiplication, and the order you multiply in doesn't change the answer. Move either rate slider to break the tie.
Where the tie quietly breaks: the contribution limit
Everything above holds your pre-tax dollars equal. The IRS doesn't. For 2026 the elective deferral limit — the most you can put in out of your own paycheck, if you're under 50 — is $24,500, and it's the same $24,500 whether those dollars have been taxed or not.
That's not a fair fight, because a post-tax dollar costs more salary to produce. Putting $24,500 into a traditional 401(k) costs you $24,500 of salary. Putting $24,500 into a Roth 401(k) at a 22% rate costs you $31,410 of salary, because you had to earn enough to pay the tax first. Same limit on paper, more of your paycheck tucked inside the account.
Put in one year's maximum today, leave it alone for 30 years at 7%, and you can watch it happen:
| $24,500 in, 30 years of growth | Traditional | Roth |
|---|---|---|
| Grows into | $186,500 | $186,500 |
| Tax due at 22% | $41,030 | $0 |
| What you keep | $145,470 | $186,500 |
A $41,030 win for the Roth. But the traditional saver isn't $41,030 behind, because they only spent $24,500 of salary to get there while the Roth saver spent $31,410 — and that pre-tax contribution cut this year's tax bill by $5,390. Invest that $5,390 the same way for the same 30 years and it grows into $41,030: the gap, to the dollar. The tie from the top of the page keeps turning back up.
So the Roth's edge at the limit is real, and it usually comes from one of two ordinary human places: the traditional saver spends that tax break, or parks it in a regular taxable account where dividends and gains get taxed along the way. If you're nowhere near the $24,500 limit, none of this applies — you're back in the tie above, and you can look up your own limit for the year if you're not sure.
What if you can't guess your retirement tax rate?
Almost nobody can, and pretending otherwise is how this question gets answered badly. It's a bet on a number that isn't fixed yet: tax law changes, and so does your income. Two things you can pin down, though. First, your rate today — that one is a fact, sitting on this year's return. Second, the rate on the other end gets charged on the money you pull out each year, not on your peak salary.
It's also a bet you don't have to place all at once. If your employer offers both sides, the $24,500 limit is shared between them, so some people send part of each paycheck to each.
Run your own two rates against each other (the arithmetic is the same for an IRA — the limits and the income rules aren't):
Open the Roth vs Traditional IRA calculator →One last thing the tie hides: none of this decides how much you put in, and that's the lever with real teeth. You still get the employer match whichever side you choose — and it's easier to miss than you'd think if you max out too early in the year. If you'd rather see how far a balance you already have can carry itself, that's the Coast FIRE math.
Frequently asked questions
Is a Roth or a traditional 401(k) better if my tax rate stays the same?
Neither. Put the same pre-tax salary into each — $8,000 a year for 30 years at 7% — and if you are taxed 22% both today and in retirement, both accounts leave you with $589,435. The traditional one holds a bigger balance, $755,686, but $166,251 of that is tax you still owe. The Roth holds less and owes nothing.
Doesn't tax-free growth make a Roth better?
The tax-free growth is real, but it is not free. You bought it by contributing after-tax dollars, so less money went in: $6,240 a year instead of $8,000 at a 22% rate. A traditional account is not taxed along the way either — its growth is taxed once, at the end, at whatever your rate is then. So the accounts differ on which rate applies, not on whether growth gets taxed each year.
How much is each tax bracket point worth?
About one percent of your pre-tax balance. In the $8,000-a-year example the balance before tax is $755,686, so every percentage point of difference between your rate today and your rate in retirement is worth roughly $7,557. Retiring 10 points lower hands the traditional account a $75,569 edge; retiring 10 points higher hands the Roth exactly the same edge.
Does the contribution limit favor the Roth?
At the maximum, yes. The 2026 elective deferral limit is $24,500 whether the dollars are pre-tax or post-tax, but $24,500 of post-tax money costs more salary to produce — $31,410 at a 22% rate. So maxing out a Roth 401(k) shelters more real money. The catch is that the traditional saver also keeps a $5,390 tax break that year, and investing it somewhere untaxed closes the gap.
Can I split my contributions between Roth and traditional?
If your plan offers both, yes. The $24,500 limit for 2026 is shared across the two, so you can send part of each paycheck to each side. Two side notes: employer matching money has traditionally landed on the pre-tax side even when your own contributions are Roth, though plans are now allowed to offer a Roth match instead. And starting in 2026, savers 50 and over who earned more than $150,000 from that employer last year have to make their extra catch-up contributions as Roth.
Last reviewed July 2026. In the yearly-contribution tables the money goes in at the end of each year and compounds once a year; the single maxed contribution goes in at the start and grows for all 30 years. One flat marginal rate is applied to the whole withdrawal — real retirement income is taxed across several brackets, which usually makes the effective rate lower than the marginal one. State taxes, employer matching, and early-withdrawal rules are set aside so the timing of the tax is the only thing moving. Limits are the 2026 figures from IRS Notice 2025-67. This is general information about how the math works, not tax advice.