"Max your retirement accounts" is advice everyone gives and almost nobody explains. Which accounts? In what order? Traditional or Roth? These are not trivial questions — the difference between making the right and wrong call here can be worth tens of thousands of dollars in retirement taxes.
The short answer: it depends on your current tax bracket versus your expected retirement tax bracket. But let's build that intuition from the ground up so you can apply it to your own situation.
The Core Difference
| Feature | 401(k) Traditional | Roth IRA |
|---|---|---|
| Contribution limit (2024) | $23,000 | $7,000 |
| Tax on contributions | Pre-tax (reduces income now) | After-tax (no deduction) |
| Tax on growth | Tax-deferred | Tax-free |
| Tax on withdrawals | Taxed as ordinary income | Tax-free |
| Income limits | None | Phases out above $146k single / $230k married (2024) |
| Required Minimum Distributions | Yes, at age 73 | No |
| Early withdrawal flexibility | Penalties before 59½ | Contributions can be withdrawn anytime |
The Tax Bracket Framework
The decision really comes down to one question: Are you paying a higher tax rate today, or will you pay a higher rate in retirement?
The Rule Most People Miss: Always Get the Match First
Before you debate Roth vs. Traditional, there is one non-negotiable step: contribute enough to your 401(k) to get every dollar of your employer match. This is true regardless of your tax bracket situation. A 50–100% immediate return from a match beats any tax calculation. Period.
The order in practice: 401(k) up to match → Roth IRA to maximum → 401(k) to maximum. This sequence is correct for most people in their 20s and 30s. The Roth IRA gets priority over additional 401(k) contributions because of its flexibility and tax-free growth.
What About a Roth 401(k)?
Many employers now offer a Roth 401(k) option — same $23,000 limit as a traditional 401(k), but after-tax contributions and tax-free withdrawals. This is worth considering if:
- You want to contribute more than the $7,000 Roth IRA limit allows
- Your income is above the Roth IRA eligibility threshold
- You expect high income in retirement and want more tax-free money
The catch: unlike a Roth IRA, a Roth 401(k) is still subject to required minimum distributions at age 73 (unless rolled into a Roth IRA before then).
High Income? The Backdoor Roth
If your income is above the Roth IRA contribution limits ($146,000 for single filers, $230,000 for married filers in 2024), you can still access a Roth IRA through the backdoor conversion: contribute to a non-deductible traditional IRA, then convert it to a Roth. This is perfectly legal and widely used by high earners. There are some nuances around the "pro-rata rule" if you have other traditional IRA balances — worth walking through with someone before you do it.
A Practical Example
You're 30 years old, earning $110,000, and your employer matches 4% of your salary. Here's what I'd recommend:
- Step 1: Contribute 4% to your 401(k) ($4,400/yr) to capture the full match
- Step 2: Max your Roth IRA ($7,000/yr) — you're inside the income limit and your tax rate will likely be higher in retirement
- Step 3: Return to the 401(k) and contribute up to the $23,000 limit with any remaining savings
At this income level, you're likely in the 22% federal bracket. By retirement, if your portfolio is large, you may be drawing from accounts that push you into the 24–32% bracket. Every Roth dollar you contribute today is sheltered from that future rate permanently.
The One Thing That Changes Everything
Tax law changes. Rates that are historically low today may not stay that way. The Tax Cuts and Jobs Act provisions are set to expire at the end of 2025, which could push many brackets higher. This uncertainty is itself an argument for having some money in both pre-tax and Roth accounts — tax diversification in retirement gives you flexibility to manage your annual taxable income strategically.
Don't try to perfectly optimize for one outcome. Build both buckets, lean toward Roth while you're young, and revisit the allocation as your income grows.
If you want to map this out for your specific numbers — income, bracket, employer plan options, and timeline — a 30-minute session is exactly what it's designed for.