Walk into any office breakroom, or, heaven forbid, mention you’re “thinking about retirement” at a family barbecue, and you will be instantly assaulted by the most baffling financial debate known to modern man: Traditional or Roth?
It’s a question that turns mild-mannered accountants into soapbox preachers and makes your brother-in-law, who still thinks a “dividend” is a type of garden tool, speak with the unshakeable authority of a Wall Street titan.
The whole thing boils down to a ludicrously simple premise that we have somehow managed to complicate with more acronyms and rules than a high-stakes board game. It is, simply: When do you want to pay your taxes? Do you want to pay them now, or do you want to pay them later?
That’s it. That’s the whole argument.
The Old Guard: The “Pay You Later” Traditional
The Traditional IRA/401(k) is the old-timer, the reliable sedan of retirement accounts. The deal is this: You put money in before the government taxes it. This is lovely, because it makes you look poorer on paper than you actually are, which means your taxable income for the year goes down. Your paycheck feels a little fatter. You get to enjoy your tax break today.
The money then grows in this wonderful, tax-sheltered terrarium for decades, untouched by capital gains or dividend taxes. The catch is that when you finally retire and try to take that money out, the IRS will be waiting for you at the door, hand outstretched, demanding its cut of everything—your original contributions and all those glorious earnings.
The Flashy Newcomer: The “Pay Me Now” Roth
The Roth IRA/401(k) is the flashy newcomer. The Roth flips the script entirely. You pay your taxes today, on the money you earn, just like a responsible adult. Then you put that after-tax money into the Roth account. This feels slightly less good right now because your paycheck doesn’t get that immediate tax break.
But the money grows, and when you take it out in retirement, it is 100% tax-free. All of it. The contributions, the decades of compound growth, all of it. The IRS can’t touch it. You get to slam the door in their face, legally.
The Central Conflict: The Crystal Ball Problem
So, which is better? This is the part where everyone starts yelling. The “right” answer depends entirely on your ability to predict the future, which, if our March Madness brackets are any indication, is a laughable proposition.
The entire debate is a bet against your future self.
- If you think you’re in a higher tax bracket today than you will be in retirement (maybe you’re a high-earning surgeon who plans to retire and just whittle ducks), you take the break now. Go Traditional.
- If you think you’re in a lower tax bracket today (maybe you’re a 23-year-old intern) and will be in a higher bracket when you retire (as that same surgeon), you pay your low taxes now. Go Roth.
Of course, this also involves guessing what Congress will do to tax rates over the next 40 years, an act of sheer, blind faith.
The Glorious Tie-Breaker: The RMD Rule
If you’re still agonizing, there is one final, glorious tie-breaker: Required Minimum Distributions (RMDs).
The Traditional IRA/401(k) has a paternalistic, slightly annoying rule. When you turn 73, the IRS shows up and says, “You must start taking this money out, whether you want to or not, so we can finally tax it.”
The Roth (both the IRA and, as of 2025, the 401(k)) has no such rule for the original owner. You can leave that money in there, growing tax-free, until you are 150. You can pass it on to your heirs, who will also (mostly) get it tax-free. This makes the Roth an astonishingly powerful tool for estate planning, or just for people who don’t want to be told what to do by the government, which we find is a common sentiment.
Our advice? Splitting the difference, putting some in Traditional, some in Roth, seems like a decent way to admit you have no idea what the future holds. It’s called tax diversification, and it’s the financial equivalent of shrugging your shoulders and saying, “We’ll see.”
