Roth vs. Traditional, at the Level That Matters for You
Okay. We've talked about the 401k, the IRA, and the Roth IRA one at a time. Now let's put Roth and traditional next to each other, because that's the actual decision most of you are facing, whether it's inside your 401k or with an IRA you set up yourself.
I'm going to keep this at the level that matters for a beginner. There's a whole world of tax strategy past this, backdoor conversions, complicated deduction stacking, and I'll say it plainly: that's not my lane. I'm a bookkeeper, not an advisor. If you get into more complicated territory later, that's a CPA conversation. But the basic decision? That, I can walk you through.
The whole thing in one sentence
Traditional means you skip the tax now and pay it later, when you take the money out. Roth means you pay the tax now and skip it later.
That's it. That's the whole mechanism. Everything else is detail on top of that.
Why this feels harder than it is
I think Roth vs. traditional feels complicated because it sounds like it should have a right answer, the way "should I get the match" has a right answer. It doesn't work that way. It depends on something nobody can fully know, which is whether your tax rate will be higher or lower later than it is now.
Here's the thing. Nobody can promise you that answer. Not me, not a financial planner, not the internet. So we're not solving for certainty. We're solving for a reasonable guess.
A rough way to think about it
If you're early in your working life, and your income right now is lower than it's probably going to be in twenty years, Roth tends to make sense. You're paying tax at what might be your lowest rate ever, and then that money grows and comes out tax-free later, when you're likely earning more.
If you're already at a high income point, or you're older and closer to retirement, traditional can make more sense. You get the tax break now, when your rate is higher, and you'll likely be in a lower bracket when you withdraw.
That's a sunday-best rule of thumb, not a law of physics. Plenty of people's situations don't fit neatly into either box. If you genuinely don't know which one describes you, pick one and start. You don't have to fix it all at once, and you can always adjust contributions going forward.
My actual opinion here
A Roth IRA is the easiest first move for most people in their 20s and 30s, and it gets undersold. I think that's mostly because it doesn't come with a paycheck deduction to make it automatic like a 401k does. You have to actually go set it up yourself. That one extra step is the only reason people skip it, not because it's a bad idea.
If that's you, and you've already got your employer match handled, opening a Roth IRA is a good next move. Small amounts count. You don't need a big number to start.
What to actually do at home this week
- If you have a 401k with both traditional and Roth options, log in and look. Most plans let you split your contribution between the two. You don't have to pick one exclusively.
- If you're doing an IRA on your own, decide Roth or traditional based on where your income sits right now versus where you expect it in retirement. Rough guess is fine.
- Write the decision down in your ledger, along with why you picked it. Not for anyone else. For future you, when you forget why you chose what you chose.
That last one matters more than people think. I made a mistake early in the ledger that taught me this. The very first year I kept it, I added a whole column wrong and was convinced we had $340 more than we actually did. Aaron found the error, not me. I'd felt so confident in that number, and it was just wrong, sitting there in my own handwriting.
That's why I double-check my own arithmetic now, on everything, even something as small as writing down which account is Roth and which is traditional. It's an easy thing to mix up on paper. Write it clearly enough that you can't confuse yourself in six months.
One honest caution
If you're contributing to a Roth 401k or Roth IRA, make sure the paperwork actually says Roth, not just that you assumed it. I've seen people think they set up Roth contributions and they were actually traditional, because the form defaulted to traditional and they didn't catch it. Read the confirmation. It takes two minutes and it saves you a bigger headache later.
Before next time
Look at whichever account you're actively contributing to and confirm, in writing in your ledger, whether it's Roth or traditional. If you're not sure, that's your homework, find out for certain before we meet again. 💛