Few financial decisions have more long-term impact than choosing between a Roth vs Traditional 401(k) or IRA. Both help you save for retirement – but they take opposite approaches to taxes. In a Traditional account, you save before paying taxes. In a Roth, you pay taxes now and skip them later.

That single difference – when you pay taxes – can shape not only your retirement income, but also your estate plan and peace of mind. The right answer depends on your expectations about the future – and how you want your financial life to take shape.

The Basics: How Roth and Traditional Accounts Work

Both Roth and Traditional accounts help you save for the same goal – retirement income – but they differ in how and when you pay taxes.

Traditional 401(k)/IRA:
You contribute pre-tax dollars, lowering your taxable income today. The money isn’t taxed so long as it stays in the account, but every withdrawal in retirement is taxed as ordinary income.

Roth 401(k)/IRA:
You contribute after-tax dollars. You don’t get a deduction now, but your growth and withdrawals are completely tax-free if you follow the rules.

Both types have the same contribution limits and usually have the same investment options. Many employer plans let you split contributions between the two, giving you flexibility.

If you’re over 50, you can also take advantage of catch-up contributions to boost your retirement savings. Our article on catch-up contributions explains how they work and when to prioritize them.

The Core Decision Framework: Will Your Tax Rate Be Higher or Lower Later?

At its core, the decision comes down to a single question:

Will your tax rate in retirement be higher or lower than it is today?

If you expect your taxes will be higher in the future, a Roth can make more sense.
If you expect your taxes will be lower in the future, a Traditional account may be better.

That may sound simple, but there are many moving parts. A few that often surprise people:

• Your taxable income will likely decline in retirement. Most people spend less once they stop working – especially before Social Security begins – and even long-term spending usually stays lower than during their peak earning years. This means your overall taxable income, and often your effective tax rate, may fall in retirement.
• Your filing status may change. When one spouse passes away, the survivor moves from joint to single tax brackets – often called the widow’s penalty.
• Tax laws change. The current lower rates are scheduled to sunset in 2026 unless extended.
• Deductions shrink in retirement. You may lose write-offs like mortgage interest or pre-tax 401(k) contributions.

It’s not about predicting the future–it’s about recognizing that your retirement income, expenses, and tax situation will look different than they do today.

Beyond the Brackets: Other Factors That Matter

While tax rates are central, other considerations can tip the scales.

1. Flexibility and control
Roth accounts offer freedom. Because withdrawals are tax-free and have no required minimum distributions (RMDs), you control when and how you access funds. That flexibility can help you manage your taxable income each year – especially if you want to keep Medicare premiums (IRMAA) or Social Security taxes in check.

2. Managing taxable income in retirement
Traditional accounts eventually require RMDs starting at age 73. These withdrawals add to your taxable income, which can ripple through your retirement picture – affecting everything from Medicare costs to the taxation of your Social Security benefits.

3. Conversion opportunities
For many pre-retirees, there’s a window between retirement and when you claim your Social Security benefits where your income may be unusually low. Those “gap years” can be an ideal time to convert some Traditional savings into Roth, paying taxes at lower rates now to create flexibility later.

For more on how to coordinate your withdrawals to make the most of your savings and minimize taxes, see our article The Smart Withdrawal Order for Retirement Spending.

4. Estate planning advantages
Roth accounts can also support your legacy goals. Because withdrawals are tax-free and there are no lifetime RMDs, you can allow Roth assets to grow longer – potentially leaving more for your heirs. They’ll still need to withdraw the funds within 10 years under the SECURE Act, but those distributions won’t create taxable income.

Connecting Your Financial Choices To Your Bigger Picture

Choosing between Roth and Traditional accounts isn’t only about today’s tax rate. It’s about aligning your financial decisions with the kind of life you want to live in retirement.

Our free guide, Life Beyond the Numbers, can help you connect your financial plan to your bigger purpose.

Estate and Legacy Considerations

How you fund your accounts today can also affect what you leave behind.

Roth accounts are often more inheritance-friendly.
Heirs must still empty inherited Roth IRAs within 10 years of inheritance under the SECURE Act, but those withdrawals are tax-free. Traditional IRAs, by contrast, create taxable income for your beneficiaries.

Charitable giving strategies.
If giving is part of your legacy, consider leaving Traditional IRAs to charity (which pays no tax) and Roth or taxable assets to family members.

The widow’s penalty.
After one spouse passes, the survivor’s income may stay similar, but single brackets are much narrower–often creating a higher effective tax rate. Strategic Roth contributions or conversions while both spouses are alive can help smooth that future tax jump.

Asset location and step-up in basis.
Taxable accounts receive a step-up in basis at death; IRAs do not. That makes it even more important to consider which assets you hold in each account type.

Other Accounts to Keep in Mind

Health Savings Accounts (HSAs):
When used for qualified healthcare expenses, HSAs can function like a “stealth Roth” – tax-deductible going in, tax-free coming out.

Backdoor and Mega Backdoor Roths:
For higher earners, there are ways to build additional Roth savings – like backdoor or mega backdoor Roth contributions through your IRA or 401(k). The rules can be complex, and whether they make sense depends on your income, plan features, and overall strategy.

Wondering if these strategies could fit your plan?
Schedule a free Clarity Call with a Parkwoods advisor to explore how to make your savings more tax-efficient and retirement-ready.

Whether or not these strategies apply to you, the most important step is understanding how each piece fits into your larger plan.

Putting It All Together

There’s no single right answer for everyone. Your decision depends on how you expect your income, spending, and goals to evolve over time.

Michael and Denise: Saving at Their Peak
At 55, Michael and Denise are in their highest-earning years and plan to retire at 62. They expect their income to drop significantly once they stop working. For them, Traditional 401(k) contributions make sense – they’d rather take the deduction now while their tax rate is high, then pay lower taxes in retirement.

Tom and Julia: Planning ahead
Tom and Julia are in their mid-40s and both advancing in their careers. They expect their income – and their tax rate – to rise over time. To get ahead of those future taxes, they choose to make Roth contributions now, paying taxes at today’s rates in exchange for tax-free income later. Building up Roth savings gives them more control and predictability over their retirement income when their earnings – and tax brackets – are likely to be higher.

Megan and Rob: Planning for Their Legacy
As Megan and Rob near retirement, their savings are in a strong position, and they’re thinking more about what comes next. They choose to build up their Roth accounts so their kids can inherit tax-free assets – and to give themselves more flexibility with withdrawals later in life.

The goal isn’t to predict tax law – it’s to design flexibility. Balancing Roth and Traditional accounts can give you more control over your taxes, withdrawals, and legacy.

Next Steps

At Parkwoods, we bring your investment, tax, and estate planning together – working with your CPA or providing in-house support – so every part of your plan works toward a single goal: helping you live with confidence and clarity in retirement.

Your savings decisions today can shape your retirement confidence tomorrow.

Our free ebook, Life Beyond the Numbers, can help you see how your financial choices connect to the life you want to live.