Taxes now or taxes later?
The traditional-versus-Roth trade-off
Whether a traditional or Roth retirement account is right for you can depend on several factors, including which account type(s) you are eligible for, your current and expected tax rate and when you plan to take withdrawals.
- With traditional 401(k)s and traditional Individual Retirement Accounts (IRAs), you generally contribute pretax dollars and pay taxes on withdrawals.
- With Roth 401(k)s and Roth IRAs, you generally contribute after-tax dollars and may take withdrawals tax free in retirement.*
- Whether you may contribute to a traditional 401(k) or Roth 401(k) depends on what type of account(s) your employer sponsors.
- Anyone with earned income may contribute to a traditional IRA, but contributions to Roth IRAs are phased out above certain income levels.
- Which account is right for you may also depend on when you plan to take withdrawals, as rules vary among the account types.