Roth or traditional? Decide when to pay the tax.

When you save for retirement, you’ll often see two flavors of the same account: Roth and traditional. A 401(k) can come in both versions. So can an IRA, or individual retirement account. The names sound technical, but the core difference is simple. It’s about when you pay income tax on the money.

There isn’t one right answer for everyone. But once you see how each one works, the choice gets a lot less intimidating.

The basic difference: tax now or tax later

Traditional accounts: tax later

With a traditional 401(k), your contributions come out of your paycheck before income tax. That lowers your taxable income for the year. With a traditional IRA, you may be able to deduct your contributions, depending on your income and whether you have a retirement plan at work.

The money grows without yearly tax on its gains. When you withdraw it in retirement, those withdrawals are generally taxed as income.

Roth accounts: tax now

With a Roth 401(k) or Roth IRA, you contribute money that’s already been taxed. You don’t get a tax break today.

The payoff comes later. Qualified withdrawals, including the growth, are tax-free. A withdrawal is generally qualified if the account has been open at least five years and you’re 59½ or older, or you’ve become disabled. Distributions after the owner’s death can also qualify. A Roth IRA also allows a qualified withdrawal for a first-time home purchase.

Comparing your tax rate today and later

A helpful way to frame the choice is to compare two rates:

• Your tax rate today, based on your current income.
• The tax rate you expect in retirement, based on the income you think you’ll have then.

If you expect your tax rate to be higher later, paying tax now with a Roth may make sense. This is common earlier in a career, when income is often lower than it will be.

If you expect your tax rate to be lower later, taking the tax break now with a traditional account may make sense. This is common in peak earning years.

Of course, nobody knows exactly what their income or tax rules will look like decades from now. That uncertainty is normal. It’s one reason many people don’t pick just one.

Tax diversification: having some of both

Tax diversification means holding money in accounts that are taxed in different ways. For example, you might have some savings in a traditional 401(k) and some in a Roth IRA.

Having both can give you flexibility later. In retirement, you could choose which account to draw from in a given year, depending on your income and the tax rules at the time. It also means you don’t have to make one perfect prediction.

You can split your savings in many ways. Some people alternate year to year. Others divide each contribution. A tax professional can help you think through what fits your situation.

Rules that can shape your choice

Roth IRAs have income limits

You can contribute to a Roth IRA only if your modified adjusted gross income is below certain amounts. The limits depend on your filing status and change from time to time. Check the current figures at IRS.gov before you contribute.

Roth 401(k) accounts don’t have these income limits. Neither do traditional 401(k) accounts.

A Roth 401(k) depends on your plan

Not every workplace plan offers a Roth option. Your employer decides whether to include one. Your Summary Plan Description or plan administrator can tell you what’s available.

If your plan does offer a Roth 401(k), your employer’s matching contributions usually go into a pre-tax account. If your plan allows it and you choose it, they can go into your Roth account instead. Those contributions count as taxable income for that year. Your plan administrator can explain how your plan handles it.

Higher earners make catch-up contributions to Roth

If you’re 50 or older, your plan may let you contribute extra money each year. These are called catch-up contributions. Starting in 2026, if your wages last year from the employer that sponsors the plan were above a set limit, your catch-up contributions must go into the Roth side of the plan. For 2026, the limit is $150,000 in 2025 wages, and it’s adjusted for inflation over time. Your plan administrator can tell you how your plan applies the rule.

Early withdrawals can cost you

Retirement accounts are built for retirement, and the tax rules reflect that. If you take money out before age 59½, you’ll generally owe an additional 10% tax on the taxable part, unless an exception applies. That’s on top of any regular income tax.

The IRS lists a number of exceptions, and they vary by account type. For example, some apply to IRAs but not to workplace plans. If you’re thinking about an early withdrawal, check the IRS rules or talk with a tax professional first.

Your next step

Look up whether your workplace plan offers a Roth 401(k). Then write one sentence about whether you expect your income to be higher or lower in retirement than it is today. That sentence is a solid start for a conversation with a tax professional, or for your own decision.