Skip to main content
Meridary
Back to blog

Roth vs. Traditional 401(k): Why Equal Contributions Can Mislead

Equal nominal contributions answer an account-balance question. Equal take-home-pay cost answers the household savings question.

By Steven, Founder · Published October 31, 2026 · Updated October 31, 2026

Short answer

  • At a 24% marginal income-tax rate, a $10,000 traditional deferral costs $7,600 after the income-tax saving.
  • Compare it with a $7,600 Roth deferral, or explicitly invest the traditional tax savings elsewhere.
  • Traditional and Roth employee deferrals share the annual employee limit.

Start with the paycheck, not the account statement

Suppose a $10,000 traditional 401(k) deferral saves 24% in federal income tax on every dollar. Its net spending cost is $7,600. A $10,000 Roth deferral costs the full $10,000 because it does not reduce current taxable income. Calling Roth better because both accounts grow to the same balance before tax ignores the larger cash commitment.

This comparison concerns income tax, not a 24% reduction in every payroll charge. State taxes and other payroll rules can change the result. Use your actual incremental income-tax saving rather than your total withholding percentage, which is not a measure of the deduction's value.

Compare equal budgets with identical investments

For an out-of-pocket budget of $7,600, compare $10,000 pretax with $7,600 Roth. If both triple, the pretax balance is $30,000 and the Roth balance $22,800. A 24% effective tax on the pretax distribution leaves $22,800; a qualified Roth distribution leaves the same amount.

If the future effective withdrawal tax is 12%, pretax leaves $26,400. At 32%, it leaves $20,400. Nothing in the multiplication declares a universal winner. The difference comes from the tax rate saved versus the tax rate later paid. Use the Roth versus traditional 401(k) calculator to examine that sensitivity with the same investment assumptions.

The contribution cap changes the comparison

The general employee elective-deferral limit is $24,500 in 2026, shared by traditional and Roth employee deferrals. Eligible catch-ups are additional: generally $8,000 for age 50 or older, with a higher $11,250 amount for ages 60–63 under applicable plans. Catch-up tax-treatment requirements can also matter; confirm your payroll's implementation rather than treating all catch-up dollars as freely interchangeable.

If both alternatives use the same maximum contribution, the traditional option leaves current tax savings outside the plan. An equal-cost comparison must track those savings too. Spending the refund creates a lower-savings strategy, while investing it creates an outside asset that can incur taxes on its earnings.

Keep the employer match on its own line

Do not assume your employer match becomes Roth simply because your employee election is Roth. Plan terms determine the available treatment. In a comparison, hold employer money constant unless the actual election changes its amount or tax treatment, then model that change explicitly.

The same contribution percentage can also earn different matching dollars if you reach the annual employee limit at different times. Check per-paycheck matching and any annual reconciliation before changing elections. The match calculator addresses the contribution formula, not every plan's administrative rule.

Ask which future dollars will be taxable

A pension, Social Security and existing pretax balances affect the tax rate on added withdrawals. An early-retirement period with little wage income might offer a different rate from later RMD years. A single 'retirement tax rate' is an assumption to test, not a fact you can read from today's pay stub.

The sample household demo illustrates the wider planning context before paid personal planning. Keep tax eligibility and distribution questions with a qualified professional; the example here assumes qualified Roth withdrawals and is educational rather than individualized advice.

Tripling an equal-cost contribution

Current spending cost
$7,600
Current tax saving
24%
Growth
3×

$22,800 from either option at a 24% future tax rate

$10,000 × 3 × 0.76 equals $7,600 × 3. The traditional amount rises to $26,400 at a 12% future rate and falls to $20,400 at 32%.

Related free calculators

More on this topic

Methodology

See how Meridary checks calculator figures, tests the planning engine, states model limits, and records corrections on the validation methodology page.

Sources

This is an educational estimate, not tax or financial advice. Figures reflect the law year shown and the inputs you provide. Consult a qualified professional before acting.