DanfioThe same retirement dollar is taxed on one of two dates
Published 2026-10-26 · Last reviewed 2026-10-26
A retirement account does not avoid tax; it chooses the year the tax is paid. A traditional account takes the deduction now and taxes the withdrawal later, a Roth account takes the tax now and never taxes the qualified withdrawal, and a taxable brokerage account pays tax on the growth along the way. Once the contribution is the same, the comparison stops being about the account and becomes about two marginal rates: the one you face today and the one you expect in retirement.
The same dollar is taxed on one of two dates
Put $7,500 a year into an account for 30 years at 7 percent and the pre-tax balance reaches $708,456. At a 22 percent rate today and the same 22 percent rate in retirement, the traditional account taxes the withdrawal down to $552,596, while the Roth account starts with $175,500 of after-tax money and ends at $552,596 - the same figure. That is not a coincidence: a deduction is worth the rate today, the withdrawal is taxed at the rate then, and the break-even sits at 22.00 percent. Move the retirement rate and the winner changes: at 12 percent the traditional route is ahead by $70,846, at 24 percent the Roth route is ahead by $14,169. The taxable account finishes at $415,999 because its growth is taxed every year and again on the gain.
| Rate in retirement | Traditional after tax | Roth after tax | Ahead |
|---|---|---|---|
| 12 percent | $623,441 | $552,596 | Traditional by $70,846 |
| 22 percent | $552,596 | $552,596 | Either |
| 24 percent | $538,426 | $552,596 | Roth by $14,169 |
A deduction is worth the marginal rate, not the average
At $85,000 of single income the standard deduction leaves $68,900 of taxable income, which puts the next dollar in the 22 percent bracket. A $10,000 pre-tax contribution drops the federal bill from $9,870 to $7,670 - $2,200 saved in one year. Halving the contribution saves $1,100; taking it to the $24,500 401(k) limit saves $4,790. The full-limit figure is not the marginal rate multiplied by the contribution: the last dollars of the contribution fall through the 22 percent band into a lower one, which is why the saving per dollar shrinks as the contribution grows.
| Contribution | Amount | Federal tax saved |
|---|---|---|
| Half the limit | $5,000 | $1,100 |
| The contribution priced here | $10,000 | $2,200 |
| The full 401(k) limit | $24,500 | $4,790 |
The limits decide how much you can move
Contribution room is set by the plan and your age, not by what you would like to defer. For 2026 a 401(k) allows $24,500; at 50 the catch-up raises that to $32,500, and from 60 through 63 the larger catch-up raises it to $35,750. An IRA allows $7,500, plus $1,100 from 50. A Roth IRA is also income-tested: the ability to contribute phases out between $153,000 and $168,000for a single filer, and between $242,000 and $252,000 on a joint return. The Roth and traditional IRA share one annual limit, so the two together cannot exceed it.
Where these numbers come from
- IRS Notice 2025-67. The $24,500 401(k) deferral, the $7,500 IRA limit, both catch-ups and the Roth phase-out ranges are the published amounts, and the age you enter decides which catch-up applies.
- The bracket-by-bracket tax. $9,870 and $7,670 are the tax on $68,900 and on $58,900 of taxable income, worked through the same brackets, which is why the saving can be read as an exact dollar figure rather than a rate multiplied by a contribution.
- Compound growth and the break-even. The $708,456 balance and the $552,596 after-tax figure come from the same comparison, which grows all three accounts from the same pre-tax dollar and taxes each one at its own moment.
What this guide does not cover
It compares three accounts for one contribution amount and two tax rates. It does not model required minimum distributions, Roth conversions or a backdoor Roth, an employer match, state income tax, the saver's credit, the 10 percent early-withdrawal penalty, qualified charitable distributions, or the order in which accounts are drawn in retirement. It also assumes the contribution stays inside the limit: a contribution above it creates an excess that has its own correction, and an IRA deduction can phase out when a workplace plan is available. Future tax law is the largest unknown in any Roth-versus-traditional decision, and this page holds today's rates constant by design.
Explore the trade-off in the Roth vs Traditional Calculator, or price this year's deduction in the Retirement Tax Savings Calculator.
Estimates only - not financial, tax or legal advice, and it does not predict how the IRS will treat a particular return. Read the full disclaimer.