Roth vs Traditional Pretax 401k? Compare With These Example Worker Profiles

Roth vs Traditional Pretax 401k? Compare With These Example Worker Profiles T. Rowe Price has an article Evaluating Roth and Pretax Retirement Savings Options by Roger Young that covers the basics on the choice between a “Traditional” pretax or Roth IRA or 401k account:

The primary factor to consider is whether your marginal tax rate will be higher or lower during retirement. If your tax rate will be higher later, paying taxes now with the Roth makes sense. If your tax rate will be lower, you want to defer taxes until then by using the pretax approach.

With the Traditional pretax, you get to avoid paying income taxes on the contribution now, but you must pay taxes up on withdrawal. With the Roth, you pay income taxes now, but you don’t own any taxes upon withdrawal. However, I am linking to it because it also includes a table with some sample worker profiles. This may help clarify things for people who are still confused about which to pick.

There are other considerations due to our overly-complex tax code, but I think this is still a helpful tool.

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Roth vs Traditional Pretax 401k? Compare With These Example Worker Profiles from My Money Blog.