Should I Be Contributing to My Company 401(k) or Making a Roth Contribution?

Brett Philips
2 days ago
2 min read

Ah, the age-old financial planning question—should you go with the traditional 401(k) or the Roth option? It’s like choosing between a tax break today or a tax-free payout tomorrow. And just like most tax questions, the best answer is: it depends.

Let’s break down the differences and help you decide which contribution strategy makes the most sense for your situation.

What’s the Difference Between a 401(k) and a Roth Contribution?

Traditional 401(k)

Contributions are made pre-tax.
This lowers your taxable income today.
Growth is tax-deferred.
Withdrawals in retirement are taxed as ordinary income.

Roth Contributions (either through a Roth 401(k) or Roth IRA)

Contributions are made after-tax.
No tax break today.
Growth is tax-free.
Qualified withdrawals in retirement are 100% tax-free.

Key Questions to Ask Yourself

1. What’s your current tax rate—and what will it be in retirement?

If you’re in a high tax bracket now and expect to be in a lower bracket in retirement, the traditional 401(k) might be better. You get a tax break today and pay lower taxes on the withdrawals later.But if you're early in your career or expect your income (and tax bracket) to rise, Roth contributions might make more sense. You pay lower taxes now and avoid higher taxes on future withdrawals.

2. Does your company offer a 401(k) match?

If your employer offers a match on 401(k) contributions, always take full advantage of that match. It’s free money—don’t leave it on the table. This applies whether you’re contributing to a traditional 401(k) or a Roth 401(k).

3. Do you value tax-free retirement income?

Tax-free withdrawals in retirement can be a huge strategic advantage. Roth accounts give you flexibility with future tax planning, especially if you plan to have other taxable income sources in retirement (like rental income, Social Security, or required minimum distributions from other retirement accounts).

Combo Strategy: Why Not Both?

Here’s a little-known secret: you don’t have to choose just one. Many financial professionals (including this CPA) recommend a blended approach:

Contribute enough to your traditional 401(k) to get the full employer match.
Then, if you’re eligible, contribute to a Roth IRA (2025 limit is $7,000 or $8,000 if age 50+).
If your income is too high for a Roth IRA, consider a Roth 401(k) if your employer offers it.

This gives you both current tax savings and future tax-free income—think of it as tax diversification.

Bonus Tip: Watch Out for Income Limits

Traditional and Roth 401(k) plans have the same contribution limit:

$23,000 in 2025 (plus $7,500 catch-up if you’re 50 or older).

But Roth IRAs have income limits:

For 2025, if you’re single and earn over ~$161,000, or married filing jointly and earn over ~$240,000, your ability to contribute to a Roth IRA phases out.
Don’t worry—you might still qualify through a Backdoor Roth IRA strategy (ask your CPA!).

The Bottom Line

There’s no one-size-fits-all answer, but here’s a quick cheat sheet:

Situation	Recommendation
High income now, lower in retirement	Traditional 401(k)
Early in career or expect income to rise	Roth contributions
Want tax-free retirement income	Roth contributions
Employer offers a match	Always contribute to 401(k) at least up to the match
Not sure?	Split between Traditional and Roth

Still unsure? Talk to a CPA or financial advisor. A quick tax projection or retirement model can reveal which option might save you tens of thousands over time.