Roth vs. traditional, in plain English

The situation

Right under the contribution percentage from the last lesson, there’s one more dropdown: “Contribution type: Traditional (pre-tax) or Roth (after-tax).” Same paycheck, same investments either way — yet the internet treats this like a life-defining fork in the road. It’s actually one question, and you already have the tools to answer it.

The idea

The entire choice is when the tax hits. Retirement money gets taxed exactly once — on the way in, or on the way out. You’re picking which.

• Traditional (pre-tax): the contribution skips tax today — it comes off your taxable income, so this year’s tax bill shrinks. In retirement, withdrawals are taxed as regular income. Tax break now, tax bill later.
• Roth (after-tax): the contribution is taxed today at full price — no break now. In retirement, qualified withdrawals are completely tax-free, including every dollar of growth. Tax bill now, tax-free later.

So the real question is the one from lesson 2.1: what’s your marginal rate — the tax on your next dollar — today, versus what it might be in retirement?

Here’s the plain-English heuristic, as education rather than advice: the lower your bracket today, the cheaper it is to pay the tax today — which is the Roth deal. Many people early in their career, sitting in a low bracket, choose Roth because today’s rate is likely the lowest of their entire working life. People in high-earning years often lean traditional, taking the break when their rate is at its peak.

Two footnotes and we’re done:

• This choice exists in your 401(k) (the dropdown) and in an IRA — an individual retirement account you open yourself, also available in traditional and Roth flavors.
• The match from lesson 10.2 has nothing to do with this dropdown. Get the full match either way — that decision outranks this one.

The entire dropdown, drawn:

flowchart TD
  accTitle: Roth or traditional — the choice is only about when the tax hits
  accDescr: Retirement money is taxed exactly once, either on the way in or on the way out, and the dropdown is you picking which. A Roth contribution is taxed at full price today, and in retirement qualified withdrawals, including all of the growth, come out tax-free. A traditional contribution skips tax today, so this year's tax bill shrinks, and in retirement withdrawals are taxed as regular income.
  Q{"When do you want the tax to hit?"}
  Q -->|"Now"| R["Roth (after-tax): the contribution is taxed today, at full price — no break now"]
  R --> RL["In retirement, qualified withdrawals are tax-free — including every dollar of growth"]
  Q -->|"Later"| T["Traditional (pre-tax): the contribution skips tax today, so this year's tax bill shrinks"]
  T --> TL["In retirement, withdrawals are taxed as regular income"]

By the numbers

One worked example, on the anchor. From lesson 2.6, the $48,000 single filer’s tax picture for 2026:

Step	Amount
Gross income	$48,000
− Standard deduction (single)	−$16,100
= Taxable income	$31,900
Marginal bracket	12%

Now send $1,000 to the 401(k), each way:

	Traditional	Roth
Tax today	That $1,000 skips the 12% rate → saves ~$120 now	Taxed at full price — no break today
Tax in retirement	Withdrawals taxed as income at that year’s rates	$0 — contributions and growth come out tax-free
The bet you’re making	Your rate in retirement will be lower than today’s	Today’s rate is the lowest you’ll ever pay

That’s the whole machine: ~$120 in your pocket this year, or decades of tax-free growth later. At a 12% marginal rate, the break you’d be giving up is small — which is exactly why the low-bracket years are when the Roth trade looks best.

One footnote you can file away: Roth IRA eligibility starts phasing out at $153,000 of income for single filers — not a first-job problem.

Where this fits

Match first (10.2), tax timing second (this lesson). The third money decision in the packet is the pair of health accounts everyone nods along about and nobody explains — HSAs and FSAs, next.