Roth vs. Traditional: Where Your Retirement Money Should Go
Roth or traditional? A plain-English guide using tax rates, not slogans — with a worked example and the order most people should contribute in.
Roth or traditional? Most advice picks a side and defends it like a sports team. The honest answer is arithmetic: it comes down to one question — is your tax rate today higher or lower than it will be when you withdraw?
Here's the logic. A traditional contribution is deductible now and taxed later. A Roth contribution is taxed now and never taxed again. If your tax rate today is 25% and it will be 22% in retirement, traditional wins — you dodge the 25% and pay the 22%. If today is 22% and retirement is 25%, Roth wins. Same money, different timing.
The worked example. Say you're 32, single, earning $85,000. You contribute $6,000 to an IRA.
- Traditional: you save roughly $1,320 in tax today (22% bracket). In 30 years the account has grown tax-free, and withdrawals are taxed at whatever your rate is then.
- Roth: you pay the $1,320 today. In 30 years, every dollar comes out untaxed — including all the growth.
If your retirement bracket is lower than 22%, the traditional comes out ahead. If it's equal, it's a tie. If it's higher, Roth wins. Anyone who tells you one is always right is selling something.
Three rules of thumb that hold up:
- Early career, low income: Roth almost always wins. A 24-year-old earning $38,000 is in the 12% bracket — historically cheap tax rates. Lock them in.
- Peak earning years: traditional starts winning. A 45-year-old in the 32% bracket gets a bigger deduction now, and most people's retirement bracket drops.
- When you genuinely don't know: split it. Half traditional, half Roth is a legitimate strategy, not a cop-out — it hedges your bracket risk.
The contribution order most people should follow: 401(k) up to any employer match (free money beats everything), then a Roth or traditional IRA up to the limit, then back to the 401(k) max, then taxable accounts. The account type matters less than just contributing — a good habit in a mediocre account beats a perfect account you never fund.
One quiet advantage of Roth that doesn't show in the math: flexibility. Roth contributions (not earnings) can be withdrawn anytime without penalty, which makes it a triple-duty emergency fund. And Roth accounts have no required minimum distributions, so money you don't need can keep growing and pass to heirs tax-free.
Track it together, not separately. Whatever mix you choose, retirement accounts shouldn't be a blind spot in your net worth. Seeing your IRA and 401(k) balances alongside your taxable brokerage — in one view — makes rebalancing across all of them possible. That's exactly what unified tracking is for.
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