Roth 401(k) vs Traditional 401(k) — The Tax Breakeven Calculator

Your employer offers both Roth and Traditional 401(k). Which one wins? It comes down to one question: will your tax rate in retirement be higher or lower than it is today?

The Tax Mechanics

Traditional 401(k): Contributions are pre-tax. You don’t pay income tax now. You pay tax on every dollar — contribution and growth — when you withdraw in retirement.
Roth 401(k): Contributions are after-tax. You pay income tax now. Growth and withdrawals in retirement are tax-free.

In both cases, the 2026 employee contribution limit is $23,500 ($31,000 if age 50+).

The Breakeven Logic

If your tax rate stays the same forever, traditional and Roth produce the exact same dollar outcome. The math is symmetric.

Roth wins if your tax rate in retirement is higher than today. Traditional wins if your rate is lower in retirement.

Real Examples

Case A — Software engineer at peak earning, age 35, household $220k taxable:

Marginal federal rate: 24%
Likely retirement income: $80k–$100k (lower bracket)
Traditional wins. Save 24% now; pay 12%–22% later.

Case B — Resident physician, age 28, household $65k taxable:

Marginal federal rate: 12%
Likely retirement income: $200k+ as attending
Roth wins. Pay 12% now; avoid 24%+ later.

Case C — Mid-career manager, age 45, household $130k:

Marginal federal rate: 22%
Likely retirement income: similar (~$100k–$130k)
Roughly a tie. Split contributions 50/50.

What Most People Miss

Two factors that tilt the math toward Roth:

You can also fund a Roth IRA on top — having Roth-tax-bucket money creates flexibility in retirement (you can withdraw without bumping into Social Security taxation thresholds).
Roth has no RMDs as of the SECURE Act 2.0 effective 2024 — your money can grow tax-free indefinitely.

One factor that tilts toward Traditional:

The upfront tax break can be invested if you’re disciplined. A 24% saver who routes the tax savings into a taxable brokerage account often ends up ahead.

The Pragmatic Split

If unsure, split 50/50. This hedges the tax-rate uncertainty and gives you flexibility in retirement to control your taxable-income mix.

Bottom Line

Roth if you’re early career and earning less than you will. Traditional if you’re peak career and earning more than you will. 50/50 if uncertain. Always contribute enough to get the full employer match — that’s free 100% return regardless of which bucket.