Roth or Traditional 401(k)? A Smart Retirement Tax Question Explained

A 55-year-old nearing retirement wonders whether to switch to Roth contributions. Here's what to consider about taxes now vs. later.

Planning for retirement means making smart choices about taxes — and one big decision is whether to use a Roth or traditional 401(k). A 55-year-old reader, retiring in six years, asked a financial expert which option gives the best tax benefits.

First, let's explain the basics. A 401(k) is a retirement savings account offered by your employer. There are two main types:

Traditional 401(k): You put money in *before* taxes. You pay taxes later when you withdraw the money in retirement.
Roth 401(k): You put money in *after* paying taxes now. Your money then grows tax-free, and you pay nothing when you withdraw it later.

The big question: Is it better to pay taxes now (Roth) or wait until retirement (traditional)? The answer depends largely on whether your tax rate will be higher now or later.

Here are key facts from the article:

Only 18% of workers use a Roth 401(k) today (up from 11% in 2017).
A new government rule says people earning over $150,000 who are 50 or older must put their catch-up contributions (extra savings allowed for older workers) into a Roth account.
For 2026, the regular contribution limit is $24,500, plus an $8,000 catch-up if you're 50+.

Why choose Roth? Besides tax-free growth, Roth accounts have other perks:

No required withdrawals — traditional accounts force you to start taking money out at a certain age, but Roth doesn't.
Better tax control in retirement, since Roth withdrawals don't add to your taxable income.
Easier to pass on to heirs (family members who inherit your money).

Interestingly, experts say younger, lower-income workers benefit most from Roth — because they're in lower tax brackets now and can lock in tax-free growth for decades.

Bottom line: If you earn over $150,000, the choice may already be partly made for you. Otherwise, weigh whether you'll likely pay more taxes now or in retirement, and consider talking to a financial advisor.

This is an AI-generated summary. Read the original article at: https://www.marketwatch.com/story/im-55-and-retiring-in-6-years-should-i-be-switching-to-roth-401-k-now-71d6c468?mod=mw_rss_topstories