The top things to consider when deciding between Roth and traditional accounts

When you’re working and saving for retirement, you typically have a choice between traditional and Roth retirement accounts, including individual retirement accounts (IRAs) and 401(k)s. But how do you choose which account to open? Taxes are a primary factor to consider. Since you don’t want to pay more in taxes than necessary, you should choose carefully.

The tax treatment of Roth and traditional accounts varies considerably. That’s because the way you put money into these accounts and how you take it out later is very different:

• Traditional retirement accounts are generally funded with money on a pretax basis. With workplace plans, it comes straight out of your paycheck before you pay any taxes on it, and for an IRA, you may be able to deduct the contribution.  This reduces your taxable income and essentially gives you an income tax break for the same year. However, that tax break comes with strings attached. When it’s time to start taking money out of those accounts, you’re going to have to pay taxes on every dollar you withdraw.
• Roth accounts, on the other hand, are funded with money that you’ve already paid taxes on. So contributing to a Roth account doesn’t reduce your taxes today. However, qualified distributions are tax-free. (Generally, a distribution is qualified if taken at least five years after the tax year of your first Roth contribution and after you’ve reached age 59½.)

Working individuals who meet Internal Revenue Service (IRS) income limitations can contribute to a Roth IRA or make pretax contributions to a Traditional IRA. And increasingly, retirement plans like 401(k)s allow designated Roth contributions in addition to pretax contributions. So more people are going to have a choice to make. In the chart titled “Roth or Traditional?”, you will find some of the factors to help guide your decision.

Consider your current and future tax rates

The main thing you’ll want to consider when choosing between Roth and traditional accounts is whether your tax rate will be higher or lower during retirement than your marginal rate is now. If you think your tax rate will be higher, paying taxes now with Roth contributions makes sense. If your tax rate is likely to be lower in retirement, you can use traditional contributions to defer taxes instead. In addition, investors who expect to leave a legacy may want to consider the tax impact on their beneficiaries.

Of course, tax rates are hard to predict due to changes in the law as well as uncertainty around your future income levels.

When a Roth may be right for you

Here are three situations where a Roth probably makes the most sense:

1. You are currently in a lower tax bracket, but you expect that to change. Let’s say you are a young professional who is anticipating salary increases, which will put you in a higher tax bracket down the road. Contributing to a Roth IRA or Roth 401(k) means you pay the relatively low rate on taxable income now. Once you’ve retired, you will not pay any taxes on qualified distributions from the plan.
   
   
2. You are close to retirement and are concerned about required minimum distributions (RMDs). If you’ve been a disciplined saver and have contributed a healthy percentage of your income to traditional accounts for many years, eventually you’ve got to pay the piper. Generally, you must take your first RMD from Traditional IRAs and 401(k)s by April 1 after the year you turn 73. As the name suggests, these withdrawals are required, even if you don’t need the income at the time.
   
   RMDs could bump you to a higher tax bracket. Qualified distributions from a Roth 401(k) or Roth IRA, on the other hand, would not create taxable income or increase your tax rate. Therefore, a Roth contribution may be preferable to limit the RMD income taxed at a higher rate.
   
   Someone in this position may also want to consider the effect on their beneficiaries. The SECURE Act, passed in 2019, requires most non-spouse beneficiaries to withdraw all retirement account balances within 10 calendar years. This change increases the likelihood that traditional account withdrawals will push them into a higher tax bracket, which makes Roth assets even more attractive.
   
   
3. You are a prodigious saver. Suppose you can contribute the maximum amount to a retirement plan ($24,500 for 2026, $32,500 if you’re over age 50, or $35,750 if you’re age 60 to 63), even if you don’t get a tax break. In this case, the Roth account effectively enables you to save more in a tax-advantaged manner. Saving the maximum amount ultimately results in more after-tax retirement assets for the Roth account balance than a traditional contribution that is pretax.

When traditional could be the way to go

While a Roth is a good choice for many people, it’s not best for everyone. Here are two examples where pretax contributions, such as to a traditional 401(k) or a Traditional IRA, may be a better strategy:

1. You are in your peak earning years. When you retire, you might eliminate expenses, such as mortgage payments or college costs. Additionally, withholdings for payroll taxes and retirement contributions will go away. As a result, your income from Social Security and the amount you need to draw from retirement accounts likely will be less than what you earn today. So your federal tax bracket could be lower in retirement. Your state tax rate also could decrease, for example, if you move to an income tax-free state.
   
   In this case, taking the tax benefit now with a traditional contribution may make more sense than the Roth contribution. You’ll reduce your current taxable income while paying a higher tax rate and then make withdrawals at a potentially lower tax rate later in retirement.
   
   
2. You are struggling to save. The traditional pretax approach may enable you to get your employer’s full 401(k) match with less impact on your take-home pay. This is because taxable income is reduced by the amount of your contribution.

Having trouble deciding?

If you’re still unsure of what to do in your situation, the tiebreaker often should be in the Roth account’s favor.

That’s because:

• Roth accounts generally are better for heirs, since assets usually will be withdrawn tax-free.
• If, like many people, you have more assets in traditional accounts than in Roth accounts, adding to your Roth assets improves tax diversification. This hedges against the risk of changes in tax laws or your personal circumstances.
• Roth IRA contributions (but not necessarily the gains) can always be withdrawn at any time or at any age without tax or penalty. But be careful—it’s not as flexible for Roth 401(k) assets or assets that were converted from a Traditional IRA to a Roth IRA.

While you should devote more energy to making sure you’re saving enough, a thoughtful decision between Roth and traditional contributions can help you take full advantage of those savings.

The most frequently asked questions

Choosing between a Roth and traditional account can be challenging. Below we’ve answered some of the most common questions we hear from individual investors.

What are the income limits for Roth IRAs?

If your modified adjusted gross income (MAGI) is higher than the amount set by the IRS, you may not contribute to a Roth IRA. The most common income limits are those for married people filing jointly with a MAGI of $252,000 or more (in 2026) or those who are single, head of household, or married and filing separately with a MAGI of $168,000 or more.

How do Roth IRA phase-out ranges work?

It’s not all or nothing when it comes to IRA contribution limits. If your MAGI falls within the “phase-out” range, you may still be eligible to make some contributions to your Roth IRA depending on where your MAGI falls within that range. For example, if you’re married and have a MAGI of $246,000 in 2026, that falls within the $242,000 to $252,000 phase-out range, so you can contribute up to 60% of the $7,500 limit (if you’re under the age of 50). That would mean a maximum contribution of $4,500.

Should you split contributions between a Roth and traditional account?

Splitting contributions between a Roth and traditional account can allow you to get some tax benefit today while hedging somewhat against higher tax rates in the future. For example, if you expect your taxable income to be close to a tax bracket boundary, you could make enough traditional contributions to stay in the lower bracket, then take advantage of Roth contributions. Or you could split the contributions if it is very unclear whether your rates will be higher or lower in the future.

Is pretax/traditional or after-tax/Roth better for a young person?

Both types of retirement accounts can be valuable savings vehicles for younger investors. However, a Roth account may be more advantageous for a young person who is likely to make more money as they age, which would push them into a higher tax bracket later in life and in retirement.

How does the new rule requiring Roth contributions for higher earners’ catch-up contributions work?

Workers age 50 and older are allowed to contribute more to workplace retirement plans than younger workers. For 2026, the standard catch-up contribution for participants age 50 and older is $8,000, allowing a 50-year-old to contribute up to $32,500 instead of $24,500. (Participants ages 60 through 63 are eligible for an even higher catch-up contribution of $11,250 in 2026.) Starting in 2026, workers whose wages in the previous calendar year exceeded $150,000 (indexed) will have any catch-up contributions made to Roth accounts rather than traditional accounts.