Roth or Traditional? Tax Now or Later

The story: Two coworkers, two choices

Ana and Marcus fill out a workplace retirement form that asks them to choose traditional or Roth, with a balance scale between them.

1. Narrator: Ana and Marcus just started saving in the plan at work. The form asks: traditional or Roth?
2. Ana: Traditional lowers my taxes this year. That sounds better.
3. Marcus: Roth costs more tax now, but the money can come out tax-free later.
4. Narrator: Both are right about part of it. Traditional: skip the tax now, pay it later. Roth: pay the tax now, skip it later.
5. Narrator: Which ends with more depends on your tax rate now compared with later. Nobody knows future rates for sure.
6. Ana: I’m early in my career, so my rate is probably on the low side now.
7. Marcus: And the plan lets us split it: part Roth, part traditional.
8. Narrator: Roth: pay tax now. Traditional: pay later. Mixing hedges the bet.

What you’ll learn

1. Traditional: tax later

   Traditional money goes in before income tax, so it lowers this year’s taxable income. It grows, and withdrawals in retirement are taxed as income.

2. Roth: tax now

   Roth money goes in after tax, so there’s no break today. It grows, and qualified withdrawals in retirement come out tax-free, as long as the account’s rules are followed (see the card).

3. The real question: your rate now vs later

   If your tax rate later will be higher than now, Roth tends to come out ahead. If it will be lower, traditional tends to win. If it’s the same, they come out about even. Early in a career, many people have a lower marginal rate.

   Example: $3,000 of pay, and the money grows to 4 times its size. Roth, taxed 20% now: $2,400 × 4 = $9,600, tax-free. Traditional, taxed 30% later: $12,000 − $3,600 = $8,400.

4. You can split it

   Many workplace plans let you put part in Roth and part in traditional. Splitting hedges the bet when the future is unclear. Roth contributions and earnings follow different withdrawal rules, and Roth IRAs have income limits (see the cards).

Key words

Roth

a retirement account you fund after tax, with tax-free qualified withdrawals

traditional

a retirement account you fund before tax, with taxed withdrawals

qualified withdrawal

a Roth withdrawal that follows the rules, so it’s tax-free

Common questions

Does the employer match go in as Roth?

Often the match goes in as traditional money even when you pick Roth, though some plans let it go in as Roth. The plan’s summary says which.

Can I change my choice later?

Yes. Most plans let you change the split for future paychecks at any time.

Remember this

Roth: pay tax now. Traditional: pay later. Mixing hedges the bet.

Try it: Weigh the choice with your own bracket

1. Look up your bracket on the fact card in How Income Tax Really Works.
2. Guess whether your rate later will be higher, lower or about the same.
3. Note which choice those factors point to, or whether a split fits.

Look up your bracket on the How Income Tax Really Works card and compare it with what you expect later.

Live facts

Numbers that change over time, with when they were last checked and where they come from.

• IRA yearly limit

  $7,500

  Total you can put into all your IRAs (traditional and Roth) in a year, if you have that much earned income

  As of 2026

  Source: IRS.gov(opens in a new tab)

• Roth IRA income limits and withdrawal rules

  Source: IRS.gov(opens in a new tab)

• Roth vs traditional workplace accounts compared

  Source: IRS.gov(opens in a new tab)