About this model
Roth vs. Traditional 401(k): the short answer
For a single California filer age 35 earning $150,000, contributing $24,500 a year with a $6,000 employer match and $60,000 already in pre-tax savings, putting about 95% of new 401(k) contributions into Roth produces the most after-tax retirement income: $174,950 a year in today's dollars, against $167,704 for all Traditional and $174,899 for all Roth. Anything from 71% to 100% Roth lands within 0.5% of the best.
Figures use the model's default inputs, stated in the text. Estimates only, not financial advice.
How the model works
The usual Roth vs. Traditional comparison asks you to guess your tax rate in retirement. The Outflow model works it out instead. Traditional withdrawals stack on top of Social Security, the employer match, and existing pre-tax savings, filling the tax brackets from the bottom up, so each additional Traditional dollar comes out at a higher rate than the one before it. The best answer is often a mix.
Both paths get the same gross contribution and the same take-home pay. The tax Traditional saves today is invested in a taxable account, which pays tax on dividends every year and on gains when sold. Roth money pays no such drag, so Traditional needs a retirement tax rate somewhat below today's rate to win. In the default case, each Traditional dollar saves 33.3% in federal and California tax now and would pay 31.0% later; the two paths tie at 25.2%.
The model scores every mix from 0% to 100% Roth by level after-tax retirement income per year, in today's dollars, including Social Security. It uses 2026 federal tax law and California's latest published brackets, the Social Security benefit formula, required minimum distributions, and the Roth catch-up rule for high earners age 50 and over. A sensitivity chart shows how much each assumption, including future tax rates, moves the answer.
Frequently asked questions
Should I choose Roth or Traditional for my 401(k)?
Often some of each. Traditional saves tax at your marginal rate today, but withdrawals are taxed on top of Social Security and your other pre-tax savings. The model finds the mix where the tax saved now and the tax paid later balance out.
What tax rate will I pay on 401(k) withdrawals in retirement?
The model calculates it from your inputs rather than asking you to guess. In the default case, the extra withdrawals that Traditional contributions create would be taxed at an effective 31.0%, after Social Security, the employer match, and existing savings have filled the lower brackets.
Why does Traditional need a lower tax rate later to win?
Because its tax savings are invested in a taxable account that pays tax on dividends and gains along the way, while Roth money grows untaxed. In the default case, Traditional only wins if the tax on retirement withdrawals falls below 25.2%, even though it saves 33.3% today.
Does the model account for moving to another state?
No. It assumes you stay in California. Retiring to a state with no income tax pushes the answer toward Traditional, sometimes by a lot.
What does the model leave out?
Medicare premium surcharges (IRMAA), Roth conversions, what heirs owe on inherited accounts, itemized deductions, and a Roth employer match. Salary is held flat in today's dollars, so people early in their careers who expect large raises should lean more Roth than shown.