Traditional vs. Roth

Pre-tax now vs. tax-free later — depends on future tax rate.

The Traditional vs. Roth decision comes down to current tax rate vs. expected future tax rate.

Decision Framework

Choose Traditional When	Choose Roth When
High income now, lower in retirement	Early career / lower income now
In peak earning years	Expect tax rates to increase
Need to reduce current AGI	Want tax diversification
State has high income tax (and you may move)	Planning to leave assets to heirs
Close to retirement	Long time horizon for tax-free growth

The Math

If your tax rate is the same now and in retirement, Traditional and Roth produce identical after-tax results:

Traditional: $10,000 pre-tax → grows to $40,000 → withdraw → pay 25% tax → $30,000
Roth:        $10,000 → pay 25% tax → $7,500 after-tax → grows to $30,000 → withdraw → $30,000

The advantage shifts based on rate differential:

Higher rate now → Traditional wins (deduct at high rate, pay at low rate)
Lower rate now → Roth wins (pay at low rate, withdraw tax-free at what would be higher rate)

Hedging: Do Both

Many advisors recommend splitting contributions between Traditional and Roth to create tax diversification — the ability to draw from either bucket in retirement depending on that year's tax situation.