Roth or traditional 401(k)? It comes down to one number

By DecisionSheet · Updated September 22, 2026 · 2026 tax figures

A traditional 401(k) contribution is made with before-tax dollars and taxed when it comes out; a Roth contribution is made with after-tax dollars and a qualified withdrawal is not taxed (IRS Roth comparison chart). Which leaves more to spend depends on the tax rate on the way in, the tax rate on the way out, and one detail that is easy to skip: what happens to the tax a traditional contribution saves today.

DecisionSheet's Roth vs. Traditional calculator reduces the choice to one number, the break-even retirement tax rate. At the calculator's defaults it is 19.5%, well below the 24% rate paid today. This guide shows where that number comes from and why it is not simply today's rate.

The one number

The defaults describe $10,000 a year contributed from age 30 to 65 (35 years), a 24% marginal rate today (the rate on the last dollar earned), and a 7.5% annual return. The return is an assumption entered by the reader, not a forecast.

The model follows two paths that cost the same take-home pay each year:

• Roth. The $10,000 goes in after tax and grows at 7.5%. At retirement the whole balance is counted as spendable.
• Traditional. The same $10,000 goes in before tax and grows at the same rate. At retirement the model takes the whole balance at once and applies the expected retirement effective tax rate (the average rate across all of it, not the top bracket). The tax deduction saves $2,400 a year at 24%, and the model invests that in a taxable brokerage account.

The break-even retirement tax rate is the rate at which the two paths finish level. The calculator finds it by rerunning its own simulation at different retirement rates until the difference reaches zero, so it agrees with the calculator's dollar results.

Three retirement tax rates, one set of contributions

The three scenarios below differ only in the expected retirement tax rate: the calculator's default of 18%, the break-even of 19.5%, and 24%, the same as today's rate.

Open each case: 18% in retirement · 19.5% in retirement · 24% in retirement.

Only the traditional account's after-tax value changes across the three columns. The Roth balance and the invested tax savings do not depend on the retirement rate, and the break-even is 19.5% in all three. Below it, the traditional path ends ahead; above it, the Roth does.

At exactly 19.5% the two finish $36 apart on more than $1,542,516. The calculator treats any difference within $1,500 as a tie, and its verdict banner reports the two paths as ending within $1,500 of each other rather than naming a winner.

The break-even holds only at the chosen retirement age. At 19.5% the traditional path is ahead at every earlier age, by as much as $7,508 at age 53, and the gap closes in the final years.

Why the break-even sits below today's rate

In this model, equal tax rates now and in retirement make the two paths finish exactly level only when the invested tax savings are taxed at nothing. The fourth scenario is the 24% case with both taxable-account taxes set to zero: 24% now and later, no tax on the savings account. The traditional path totals $1,542,516, exactly the Roth's $1,542,516, and the break-even is 24%, today's rate. The calculator reports it as a tie.

With the default taxes back on, the savings account is charged two ways:

• Tax drag (tax paid each year on the account's dividends): the model cuts the account's return by 0.4%, from 7.5% to 7.1%.
• Capital-gains tax: at retirement the model taxes all growth above the contributed savings at 15%. That includes growth the drag has already taxed; the model does not add reinvested dividends to the account's cost basis.

At equal 24% rates those two charges shrink the savings account from $370,204 to $300,827. The difference, $69,377, is the whole of the Roth's lead in that scenario. The Roth and the traditional account itself are untouched by either tax.

Each tax alone also lowers the break-even. With the drag on and the capital-gains rate at zero it is 22%; with the capital-gains tax on and no drag it is 21.2%; with both it falls to 19.5%.

What moves the break-even

• Contribution. No effect: the view's $7,500 and $24,500 presets both give 19.5%. The dollar gap scales with the contribution; the rate does not.
• Years to retirement. Starting at 45 instead of 30 (20 years of growth) raises it to 21.2%.
• Return. At 6% it is 19.9%; at 9%, 19.2%.
• Today's rate. At 12% it drops to 9.8%.

What the model leaves out

• State tax. There is no separate state input. The current-rate field is described as federal plus state, so state tax, including any change from moving in retirement, enters only through the two rate inputs.
• Withdrawal timing. The model values each account in one lump at the retirement age. It has no withdrawal schedule, so no required minimum distributions and no spreading of withdrawals across lower-bracket years.
• Social Security. Part of a Social Security benefit may become taxable when half the benefit plus all other income passes a base amount of $25,000 for a single filer or $32,000 for a married couple filing jointly (IRS Publication 915). Traditional withdrawals are taxable income and count toward that total. The model has no Social Security input.
• Employer match. The model has no match input. Any employer contribution sits outside the comparison.

Assumptions and limits

• The return is a constant annual rate applied every year, the same for all three accounts before the drag. It is an assumption, not a forecast.
• Roth withdrawals are treated as fully tax-free. Under IRS rules that holds for a qualified distribution, which for a designated Roth account requires the account to be held at least five years and the withdrawal to follow age 59½, disability or death (IRS Roth comparison chart).
• Every dollar of traditional tax savings is invested, every year; the model has no option to spend it. The "invested tax savings" row above shows how much of the traditional total rests on that.
• Tax rates are fixed for the whole period, today's and retirement's alike.
• The taxable account's cost basis grows only by the savings put in, not by the income the annual drag has already taxed, so that income is taxed again as a gain at the end. This simplification lowers only the traditional path, so it leans the comparison toward the Roth.
• The calculator calls a gap within $1,500 a tie, whatever the size of the balances.

Method and sources

The model is calculateRothVsTraditional in the Roth vs. Traditional calculator. It compounds the Roth, the traditional account and the taxable savings account year by year, values all three after tax at the retirement age, and finds the break-even retirement rate by bisection against that same simulation, reported to one decimal. Every figure above comes from running the model on the inputs in the scenario links.

• IRS Roth comparison chart: designated Roth contributions are made with after-tax dollars and traditional contributions with before-tax dollars; traditional withdrawals are taxed, and qualified Roth withdrawals are not.
• IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits: the $25,000 and $32,000 base amounts.

Open this scenario in the calculator

All figures on this page come from the Roth vs. Traditional calculator. Change any input there and the numbers update.