Series · Lesson 8

Roth vs. Traditional

The right mix depends on current vs. expected future tax rates—not a slogan.

Key Principle

The decision is fundamentally about when you want to pay tax and how much future flexibility you want.

What You Need to Know

• Traditional contributions may provide an upfront tax benefit, with generally taxable withdrawals later.
• Roth contributions are after-tax, with qualified withdrawals generally tax-free.
• Early-career income may make Roth contributions attractive, but the correct answer depends on current and expected future tax circumstances.
• Tax diversification can be valuable.

What You Should Do

• Review current marginal tax rate.
• Estimate future earning trajectory.
• Consider state taxes.
• Consider existing Traditional/Roth balances.
• Revisit annually as income changes.

Common Mistakes

• Assuming Roth is always better.
• Choosing solely based on today's tax rate.
• Ignoring the rest of the household's tax picture.

Advisor’s Perspective

Tax planning is a lifetime strategy. Account location and future withdrawal flexibility can matter as much as the contribution decision.

Action Checklist

• Current bracket reviewed
• Future income considered
• Employer options reviewed
• Existing tax mix reviewed
• Strategy documented

Related reading: Retirement Tax Strategy

This is Lesson 8 of the Your First Paycheck Education Series. Continue with Lesson 9: Invest Simply and Consistently.

← Lesson 7 · Lesson 9 →