Roth vs traditional, side by side
| Dimension | Traditional IRA / 401(k) | Roth IRA / Roth 401(k) |
|---|---|---|
| Tax timing | Deduct contributions now; pay ordinary rates on every withdrawn dollar | No deduction; qualified withdrawals — contributions and growth — are tax-free |
| Who it fits | High earners now expecting lower income in retirement | Young earners, low-income years, anyone betting rates rise |
| RMDs | Forced out starting at 73 (75 for 1960+ births) | None for the owner, ever — compounds untouched for life |
| Income limits | Deductibility phases out with income when a workplace plan covers you | Direct contributions phase out with income; conversions have no limit |
| Estate picture | Heirs inherit pre-tax dollars and a 10-year clock | Heirs inherit tax-free dollars on the same 10-year clock |
| The trap | RMDs stack onto Social Security and spike Medicare premiums | Paying conversion tax at a higher rate than retirement would have charged |
The bracket bet is the whole game
Strip away the marketing and one question decides: will your marginal rate in retirement be lower or higher than today's? Lower favors traditional — deduct at 32%, withdraw at 22%, pocket the spread. Higher favors Roth — pay 22% now to escape 32% later. Young professionals in starting brackets, gap years before RMDs, and business-loss years are Roth windows; peak-earning years are traditional years. Tax-diversification — some of each — is the honest answer for anyone who cannot forecast thirty years of Congress.
RMDs are the tiebreaker
Traditional money comes with a landlord: at 73 (or 75), distributions start whether you need the cash or not, stacking onto Social Security, inflating AGI, and tripping Medicare IRMAA surcharges two years later. Roth money has no landlord — the original owner never takes an RMD, the account compounds for life, and qualified charitable distributions from the traditional side can neutralize the RMDs that remain. Taxpayers approaching 73 with large pre-tax balances should be modeling conversions now, not admiring the balance.
The backdoor, without the mystique
High earners phased out of direct Roth contributions still have the door: make a nondeductible traditional contribution, convert promptly to Roth. The maneuver is explicitly blessed — but it converts cleanly only when no pre-tax IRA, SEP, or SIMPLE balances exist to trigger the pro-rata rule. One forgotten rollover IRA turns a tax-free backdoor into a mostly-taxable conversion. Roll pre-tax balances into a current 401(k) first, then walk through.
Frequently Asked Questions
- Usually traditional: deduct at today's high rate, withdraw at retirement's lower one. The exception is the taxpayer whose retirement rate will match or beat today's — then Roth wins.
- Yes — but the annual cap covers both combined, and deductibility of the traditional side phases out with income when a workplace plan is in play. Split only with a reason, not by default.
- Correct — never for the original owner, and SECURE 2.0 ended them for Roth 401(k)s too. Traditional accounts force distributions at 73/75; Roth money compounds untouched as long as you live.
- A nondeductible traditional contribution followed by a prompt Roth conversion — the legal path over the Roth income limits. It converts cleanly only when no pre-tax IRA balances trigger the pro-rata rule.