Terminal after-tax value at retirement
Both bars assume the same dollar contribution and the same investment return. Roth funds $23,500 with post-tax dollars; Traditional funds the same nominal $23,500 with pre-tax dollars and pays tax on the way out.
Comparison table
| Step | Traditional 401(k) | Roth 401(k) |
|---|---|---|
| Contribution | - | - |
| Federal tax saved (current year) | - | $0 |
| Out-of-pocket cost today | - | - |
| Account balance at retirement (pre-tax) | - | - |
| Federal tax on withdrawal | - | $0 |
| Net after-tax value at retirement | - | - |
| Advantage | - | |
What if your retirement bracket is different?
Same inputs, but flexing the expected retirement marginal rate. The winner can flip - use this to see how robust your answer is.
| Retirement marginal rate | Net Traditional | Net Roth | Winner | Advantage |
|---|
About this tool
The classic textbook answer - "Roth if you'll be in a higher bracket later, Traditional if lower" - is correct but useless without the actual numbers. This quiz forces the question into 2026 IRS reality: it pulls the $23,500 employee deferral cap, the 2026 bracket thresholds, the right standard deduction for your filing status, and converts state-tax intent into a marginal-rate adjustment. Then it projects the dollar contribution forward at your real return and applies the bracket math on the way out. The output is one of three buckets - Traditional wins, Roth wins, or within 5% (call it a tie and split). The breakeven table tells you how confident you can be: if Traditional wins big from 12% to 32% retirement bracket scenarios, that's robust. If it only wins at 22% and flips above, your decision is fragile and a 50/50 split is sensible.
How the math works
- Compute taxable income today: salary minus the 2026 standard deduction ($15,000 single, $30,000 MFJ, $22,500 HoH).
- Find the federal marginal bracket that covers the next dollar of taxable income - this is your current marginal rate.
- Repeat for your expected retirement spending to get your retirement marginal rate.
- Add the state-tax adjustment: 0 pp for no-tax states, 4 pp for mid-tax, 8 pp for high-tax. We assume you stay put unless you tell us otherwise.
- For Traditional: same nominal contribution invested, taxed at retirement marginal on the way out.
- For Roth: same out-of-pocket cost so the comparison is apples-to-apples. Tax is paid up front at the current marginal rate; growth and withdrawals are tax-free.
- Apply real growth (default 7%, inflation-adjusted) over (retAge - age) years to get the pre-tax balance.
- Subtract retirement tax (Traditional) or zero (Roth) to get the net terminal value.
Worked example: $130,000 software engineer, age 32, plans 65 retirement
Assume a single filer earning $130,000 in San Francisco, contributing the full $23,500. Retirement spending target $90,000/yr in low-tax retirement state.
- Current taxable income: $130,000 - $15,000 std deduction = $115,000, landing in the 24% federal bracket. Add CA top ~9.3% on that band - effective marginal rate ~33%.
- Retirement taxable income: $90,000 - inflation-adjusted std deduction (using today's $15,000 proxy) = $75,000, landing in 22% federal bracket. No-tax state - marginal rate 22%.
- Decision: Traditional wins by 11 percentage points of permanent rate arbitrage (33% deferral vs 22% withdrawal).
- Terminal value over 33 years at 7% real: $23,500 grows to ~$216,000. Net Traditional (post 22% retirement tax) = ~$168,500. Net Roth (post 33% upfront tax, no exit tax) = same $216,000 but on $15,745 effective contribution = $144,800.
- Net advantage to Traditional: ~$23,700 per single year's contribution, in real 2026 dollars.
- Over a 30-year career: approximately $700,000 of real terminal-value advantage from picking the right side of the trade.
Worked example: $55,000 graduate, age 24, plans 65 retirement
Assume a single filer earning $55,000, contributing $7,000. Career trajectory expected to push retirement spending to $120,000/yr from large 401(k) and Roth balances.
- Current marginal rate: $55,000 - $15,000 = $40,000 taxable, sits in 12% federal bracket.
- Retirement marginal rate: $120,000 - $15,000 = $105,000 taxable, sits in 24% bracket.
- Decision: Roth wins by 12 percentage points. Pay tax now at 12%, never pay at 24%.
- Over 41 years at 7% real: $7,000 of Roth = $7,000 × 1.07^41 = ~$110,200 net (tax-free). $7,000 Traditional = $110,200 × (1 - 0.24) = ~$83,800 net. Roth advantage: ~$26,400 per single year's contribution.
- Bonus: Roth has no RMD. Future bracket creep matters less. Decision is robust even if retirement spending is lower than projected.
Federal bracket table - 2026 single filer (post-Notice 2025-83)
| Bracket | Single taxable income | MFJ taxable income |
|---|---|---|
| 10% | $0 - $11,925 | $0 - $23,850 |
| 12% | $11,925 - $48,475 | $23,850 - $96,950 |
| 22% | $48,475 - $103,350 | $96,950 - $206,700 |
| 24% | $103,350 - $197,300 | $206,700 - $394,600 |
| 32% | $197,300 - $250,525 | $394,600 - $501,050 |
| 35% | $250,525 - $626,350 | $501,050 - $751,600 |
| 37% | above $626,350 | above $751,600 |
Common mistakes that flip the wrong way
- Comparing average rate, not marginal. Decisions like Roth vs Traditional are made on the NEXT dollar in and out, not the blended effective rate. Use the bracket your incremental contribution would otherwise have been taxed at.
- Ignoring Social Security. In retirement, up to 85% of SS benefits become federally taxable. If you plan $80,000 spending and SS covers $40,000, only $40,000 hits Traditional withdrawals - your retirement bracket is lower than the spending number alone suggests.
- Forgetting the RMD bracket creep. Large Traditional balances at 73 push you into higher brackets whether you want the income or not. Workers projecting $2M+ Traditional balances should weight Roth more heavily even at marginally higher rates today.
- Confusing Roth 401(k) with Roth IRA. Roth 401(k) has no income limit. Roth IRA phases out. Different rules entirely - high earners can use Roth 401(k) directly while needing the Backdoor Roth IRA technique for IRA access.
- Not modeling state moves. If you're 40 and likely to retire in Florida, the state-arbitrage portion of Traditional is permanent. Conversely, "I'll definitely retire in Manhattan" cuts Traditional's edge by 8 to 10 pp.
- Confusing employer match treatment. Employer match always lands in Traditional (pre-tax) regardless of whether your deferral is Roth. So Roth-only deferral participants still build Traditional balances from the match side.
Decision shortcuts by bracket and age
| Your situation | Default lean | Watch-out |
|---|---|---|
| Under 30, 12% bracket | Roth heavy | Career growth will push you higher; Roth locks the low rate |
| 30s, 22% bracket | 50/50 split | Hard to predict - hedge |
| 30s-40s, 24% bracket, no-tax state | Traditional lean | If RMD balance projects huge, add Roth weight |
| 40s-50s, 32%+ bracket, CA/NY | Traditional heavy | Plus state arbitrage if moving in retirement |
| High earner ($500K+), large estate | Roth heavy | SECURE 10-yr rule punishes inherited Traditional |
| FIRE planner, early retirement | Traditional lean | Convert via Roth conversion ladder in low-bracket gap years |
The formula explained
This quiz applies four chained formulas using 2026 IRS brackets:
1. curMarginal = bracketRate(salary − stdDeduction, filing) + stateAdj
2. retMarginal = bracketRate(retSpend − stdDeduction, filing) + stateAdj
3. Net Traditional = contribution × (1 + r)^years × (1 − retMarginal)
4. Net Roth = contribution × (1 − curMarginal) × (1 + r)^years
The Roth path subtracts current tax up front so the comparison holds "out-of-pocket cost today" constant. Without this normalization, a $23,500 Roth contribution would unfairly look bigger because Traditional's $23,500 represents pre-tax dollars - i.e. a smaller after-tax economic commitment. Holding cost constant is the standard apples-to-apples Roth vs Traditional convention.
To verify, plug in (120000, 23500, 35, 65, 80000, no-tax, single, 30, 7): with current at 22% and retirement at 12%, Traditional should win by roughly $25,000 in real terminal-value per single year's contribution.
Frequently asked questions
When does Roth 401(k) win in 2026?
Roth wins when your expected retirement marginal rate is higher than today's. The classic case: under-35 workers in the 12% or 22% bracket who expect to retire in the 24%+ bracket due to career growth, accumulated wealth driving large RMDs, or living in a high-tax state in retirement. Roth also wins for high earners who plan to leave large balances to heirs - inherited Roth is far more tax-efficient than inherited Traditional under the SECURE Act 10-year drawdown rule.
When does Traditional 401(k) win?
Traditional wins when your current marginal rate exceeds your expected retirement marginal. The typical winner: peak earners in 32%, 35%, or 37% federal brackets who plan to retire on $80,000 to $150,000 of withdrawals (22% to 24% bracket). The bigger the gap, the bigger the win. State arbitrage adds to the case: deferring at California 13.3% or New York 10.9% and withdrawing in Florida, Texas, or Tennessee (0%) is a permanent rate cut on those dollars.
Are there income limits on Roth 401(k)?
None. Unlike Roth IRA (phases out at $165,000 MAGI single and $246,000 MFJ in 2026), Roth 401(k) has zero income limit. Any worker whose employer plan offers a Roth option can contribute the full $23,500 regardless of income. This is the simplest way for high earners to build a meaningful tax-free retirement bucket - and unlike the Backdoor Roth IRA, there's no pro-rata complication.
Can I split contributions between Roth and Traditional?
Yes. Most plan providers (Fidelity, Vanguard, Empower, Schwab) let you allocate any percentage between Roth and Traditional. The combined total caps at $23,500 ($31,000 if 50+, $34,750 ages 60-63 under SECURE 2.0). A 50/50 split is a common hedge if you cannot confidently predict your retirement bracket - this quiz will tell you if a clean Roth-only or Traditional-only call is the higher-EV choice.
What about Mega Backdoor Roth on top?
If your plan allows after-tax contributions plus in-service withdrawals or in-plan Roth rollovers, you can stack up to the $70,000 415(c) cap. After deferring $23,500 and capturing your employer match, the gap to $70,000 can be contributed as after-tax and immediately converted to Roth. About 25% of large plans support this mega backdoor; check your Summary Plan Description for "after-tax contributions" (different from Roth). This is the single biggest tax-advantage opportunity for high earners.
How does state tax change the decision?
State tax is real and often permanent. If you defer Traditional in California (13.3% top), New York (10.9%), or New Jersey (10.75%) and retire in Florida, Texas, Tennessee, Nevada, Washington, or another no-income-tax state, you skip about 10 percentage points of state tax forever on those dollars. That alone can flip a marginal Roth decision to Traditional. The reverse is rare - few savers move into California in retirement.
How do RMDs at age 73 change the answer?
Required Minimum Distributions start at age 73 (rising to 75 in 2033 under SECURE 2.0) and apply to Traditional 401(k)/IRA but NOT Roth 401(k) or Roth IRA. Large Traditional balances at 73 can push retirees into higher brackets and trigger Medicare IRMAA surcharges. Roth gives flexibility. For workers expecting $1.5 million+ Traditional balance at 73, consider Roth conversion ladder in the gap years (60-72) to smooth the bracket.
What is a Roth conversion ladder?
A Roth conversion ladder converts Traditional 401(k)/IRA dollars to Roth in years when your marginal rate is unusually low - typically the gap between retirement and Social Security/RMDs (ages 60-72), sabbatical years, or layoff years. After a 5-year seasoning, converted principal can be withdrawn tax-free and penalty-free before age 59-and-a-half. FIRE retirees use this to bridge the gap between early retirement and traditional retirement-account access age.