When deciding whether to make traditional or Roth contributions, a key factor to consider is when you want to pay taxes on the money you contribute.

You don’t pay tax on amounts contributed when you make traditional pretax contributions, but withdrawals will be taxed. You make Roth contributions with after-tax income, but withdrawals won’t be taxed if you meet certain requirements. You can also opt to make a combination of pretax and Roth contributions to create tax diversification for your retirement income.

The optimal choice depends on your personal financial situation, career stage and outlook on future tax rates.
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The benefits of Roth contributions

Tax-free growth and withdrawals

Contributions are made with after-tax dollars, but qualified withdrawals — including earnings — are completely tax free, subject to certain conditions.

No required minimum distributions (RMDs)

Roth in-plan accounts don’t require withdrawals during the original account holder’s lifetime, allowing for more control over retirement income and potential tax-free inheritance for heirs.

Tax diversification

Roth accounts provide tax-free retirement income, helping balance against taxable income sources like pensions or Social Security, potentially lowering your overall tax burden.

Protection against future tax increases

Since Roth contributions are taxed as they are made, future withdrawals are unaffected by rising tax rates, offering you a hedge against tax uncertainty.

Who may not want to opt for Roth contributions

If you expect to be in a significantly lower tax bracket in retirement

Traditional pretax accounts lower your taxable income when your tax rate may be higher, saving you more money overall compared to a Roth account.

If you need immediate tax savings

Making traditional pretax contributions will lower your taxable income now.

If you have specific financial circumstances

You and your tax professional may decide that making a Roth contribution would be less advantageous for you.

Important considerations

A Roth in-plan account must be open for at least 5 years before earnings can be withdrawn tax free. In addition, withdrawals from Roth accounts must meet one of these circumstances:
  • The participant is at least age 59½
  • The participant has a permanent disability
  • Upon the participant’s death, the beneficiary may withdraw funds

Starting in 2026, if you are age 50 or older and earned more than $150,000 in FICA (Social Security) wages in the prior year, the SECURE Act 2.0 requires that age-based catch-up contributions be made as Roth.

Perhaps most importantly, the decision about whether to make contributions as traditional pretax, Roth after-tax, or a combination of both should be made in consultation with your tax professional. Plan representatives cannot offer investment, legal or tax advice.
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