Should I contribute to a Roth or Traditional 401(k)?

It depends primarily on comparing your current marginal tax rate against your expected marginal rate in retirement. If your current rate is 5 or more percentage points higher than your expected retirement rate, Traditional usually wins. If it's 5 or more points lower, Roth usually wins. Roughly equal rates produce close to a tie, with a slight edge to Roth.

Why does Roth win slightly even at the same tax rate?

Because a fair comparison has to model what a Traditional saver does with their tax savings — typically investing the difference in a side taxable account. That side account is subject to ongoing tax drag (dividends, capital gains distributions taxed annually), which Roth's fully tax-free growth doesn't face, giving Roth a small edge even when the now-rate and later-rate are identical.

How do I estimate my retirement tax bracket?

Most retirees drop one or two brackets compared to their peak working years, since retirement income (Social Security, RMDs, portfolio withdrawals) is typically lower than peak-career salary. If your projected retirement income firmly places you in a lower bracket than your current one, that's your expected retirement rate for the comparison.

What does 'apples-to-apples' mean in this comparison?

It means comparing Roth against Traditional plus the side taxable account the tax savings would realistically be invested in — not just comparing the raw account balances. A Traditional contribution of the same dollar amount as a Roth contribution actually costs less out-of-pocket (due to the tax deduction), so a fair comparison has to account for what happens to that freed-up cash.

The Roth vs Traditional Decision Comes Down to One Number: Will Your Tax Rate Be 5+ Points Different in Retirement?

The Roth versus Traditional retirement account decision gets debated constantly, but the actual math resolves to a single comparison: your current marginal tax rate against your expected marginal rate in retirement.

The rule of thumb, and why it’s mostly right

Rate comparison	Likely winner
Current rate 5+ points higher than retirement rate	Traditional
Current rate 5+ points lower than retirement rate	Roth
Roughly equal rates	Near-tie, slight edge to Roth

The logic is straightforward once stated: Traditional contributions get a tax deduction now and are taxed on withdrawal later, so they benefit when today’s rate is higher than the future rate. Roth contributions are taxed now and grow completely tax-free, so they benefit when today’s rate is lower than the future rate — you’re paying tax at today’s (lower) rate rather than tomorrow’s (higher) one.

Why Roth gets a small edge even in a tie

A truly fair comparison isn’t Roth versus Traditional in isolation — it’s Roth versus (Traditional plus what happens with the tax savings). A Traditional contribution costs less out of pocket than an equivalent Roth contribution, because the Traditional contribution reduces taxable income immediately. The honest comparison assumes that freed-up cash gets invested somewhere — typically a taxable brokerage account. That side account, unlike the Roth or Traditional retirement account itself, faces ongoing tax drag: dividends and capital gains distributions get taxed annually, even before any withdrawal happens. This structural tax drag on the side account gives Roth a small persistent edge, even in scenarios where the now-rate and later-rate are exactly identical.

Why estimating your retirement rate is the hard part

The rule of thumb is simple to state but requires a genuinely uncertain input: your marginal tax rate decades in the future. Most retirees do see their marginal rate drop somewhat, since retirement income — Social Security, Required Minimum Distributions, portfolio withdrawals — is commonly lower than peak-career salary. But this isn’t universal: someone with a large traditional-account balance facing substantial RMDs, or someone expecting significant pension income, could see a retirement rate closer to (or even above) their current working rate. The comparison is only as good as the retirement-rate estimate feeding into it.

Where this framework doesn’t apply

Tax law changes between now and retirement. This comparison assumes today’s bracket structure holds into the future — actual future tax rates and bracket thresholds are legislated and can change, a genuine source of uncertainty this model can’t eliminate.
You’re near a Roth income limit. Direct Roth IRA contributions phase out at higher incomes (though a Roth 401(k), where offered, has no income limit) — check your specific eligibility before assuming Roth is available at your income level.
You need the tax deduction now for cash-flow reasons. Someone in a genuinely tight current-year cash-flow situation may value the immediate tax deduction from a Traditional contribution regardless of the long-run rate comparison.
State tax treatment differs from federal. Some states tax retirement account withdrawals differently than contributions, or have no state income tax at all — factor in your specific state’s treatment on both ends of the comparison, not just federal rates.

What to actually do

Estimate your current marginal tax rate as precisely as possible — the bracket on your next dollar of income, not your average rate.
Project your realistic retirement income (Social Security estimate, expected RMDs, planned withdrawal rate) to estimate your likely retirement marginal rate.
If the two rates differ by 5 or more points in either direction, follow the rule of thumb with reasonable confidence.
If the rates are close, lean Roth for the side-taxable-tax-drag advantage, but don’t treat the difference as large — either choice is reasonable in a genuine tie.
Consider splitting contributions between Roth and Traditional if genuinely uncertain about future rates — diversifying tax treatment hedges against the estimation risk in either direction.

Open the Roth vs Traditional Calculator → and run your own current and expected retirement tax rates through the apples-to-apples comparison.