How should Ritholtz Wealth Management compare Roth vs. traditional 401(k)?

Before the annual election window, discard the easy slogans

“Roth withdrawals can be tax-free, so Roth always wins” leaves out the tax paid before the money enters the account. “High earners should always use pre-tax” misses the possibility that pension income, Social Security, and required distributions may fill much of a later tax bracket. Ritholtz Wealth Management puts the marginal-rate comparison first: what tax rate applies to the next dollar you earn, and what rate is likely to apply when you spend this money.

A Roth 401(k) has no income limit for contributions. That differs from a direct Roth IRA contribution, which has income phase-outs under IRS rules. Access is useful, but it does not settle whether paying tax today is cheaper than paying it later.

The paycheck difference is immediate. Roth deferrals come from pay after income tax, so the same contribution generally leaves less take-home pay. Traditional deferrals generally reduce current taxable wages for federal income tax, leaving more cash from that paycheck. The contribution still comes from your compensation either way.

What should the election form tell you before the first payroll?

Before the first payroll, the election form should show separate Roth and traditional fields, the plan’s due date for changes, and whether payroll accepts a percent of pay or a flat dollar amount. Ritholtz Wealth Management suggests that Ramon, a civil engineer, verify those details before he assumes a submitted change will touch his next check. Ask payroll what happens after processing has begun; a late form may affect a later paycheck.

The calendar matters more than people think. Ask the plan administrator which payroll date a changed election first reaches; no one can go back and recode wages that payroll has already processed.

During the first pay periods, use the shared deferral limit correctly

For 2026, the IRS limit for Roth and traditional employee deferrals combined is $24,500 in a 401(k), 403(b), governmental 457, or TSP plan. A 60% traditional and 40% Roth election can be useful, but it divides one contribution limit. It does not create another $24,500 of room.

A split is reasonable when you want part of the current deduction and also some future tax-free withdrawal capacity. Ritholtz Wealth Management would then check the first changed pay stub against four things: federal withholding, net pay, ordinary spending, and the taxable-account investing you planned to do. A contribution election that forces you to borrow for routine bills is not clever tax planning. It is a cash shortage with better branding.

At age 50 and again at ages 60–63, check the catch-up instruction

At age 50, the 2026 IRS catch-up contribution is $8,000, and at ages 60–63 it rises to $11,250 if the plan offers catch-up contributions. Starting under the 2026 rules, an employee whose prior-year FICA wages from that employer exceeded $150,000 must make catch-up contributions as Roth contributions.

That wage test applies to catch-up dollars, not automatically to every regular deferral. You may still have a regular Roth or traditional election under the plan’s terms. Get the plan’s written notice before the first catch-up payroll, because payroll coding often behaves more literally than the employee expects.

The IRS uses FICA wages, which are wages subject to Social Security and Medicare tax. Do not substitute your household adjusted gross income or a spouse’s wages for that employer-specific figure. Payroll can explain its coding; a CPA can explain the household tax effect.

Midyear: calculate Ramon’s tax-rate wager before changing it

Ramon is age 61 and works at a private engineering firm. Yolanda, age 59, is a retired high-school chemistry teacher with a small state pension. Their $1.1M sits across Ramon’s 401(k), two IRAs, and a $200K brokerage account. Her pension affects their household return, but this calculation isolates Ramon’s next $24,500 contribution so the arithmetic stays visible.

For illustration, hypothetical Ramon directs $24,500 of pay to his 401(k). At an assumed 24% marginal federal rate, a traditional deferral reduces current federal income tax by $24,500 × 24% = $5,880. A Roth deferral creates $0 of current deduction. Assume he later withdraws that same $24,500 at an illustrative 12% marginal federal rate: pre-tax withdrawal tax is $24,500 × 12% = $2,940, while a qualified Roth withdrawal has $0 federal income tax.

The apparent difference is $2,940, but it excludes investment growth, state taxes, and what Ramon does with the $5,880 saved today. That saved tax only matters if it has a useful home, such as taxable savings for early retirement spending. This site has a calculator for testing this kind of rate comparison.

Waiting until the final high-income years to choose Roth solely because future RMDs sound large can cost $2,940 on a $24,500 contribution when the current illustrative rate is 24% and the future withdrawal rate is 12%, before counting the value of current tax savings. Choosing Roth can still be sensible when the expected withdrawal rate is similar or higher, but the slogan is not the analysis.

Ritholtz Wealth Management favors writing down the two rates and the source of each estimate before changing an election. Market forecasts do not answer this question. Your expected spending pattern does.

Put the contribution beside the pay stub

Questions worth putting in writing

• CPA: Ask which household income already fills the current marginal rate and whether pension income changes the estimate.
• Plan administrator: Ask how catch-up contributions are coded and when a new election takes effect.
• Advisor: Ask how the election changes taxable savings available between retirement and required distributions.

Before the final payroll of the year, catch what payroll will not fix

Treating a Roth deferral and a traditional deferral as equal reductions in take-home pay is a timing error. At a hypothetical 24% marginal rate, a $24,500 Roth deferral requires $5,880 more current tax than the same traditional deferral. That difference can drain the cash reserve you expected to keep for debt payments or an emergency.

Assuming prior-year FICA wages above $150,000 allow a pre-tax catch-up creates a different surprise. The Roth catch-up treatment can remove a deduction you expected, changing withholding and year-end cash. Save the election confirmation, then match the final payroll record with your intended Roth and traditional amounts before you file taxes. Form W-2 is a record, not a repair kit.

After retirement, which balances will create taxable cash flow?

Pre-tax 401(k) withdrawals generally create ordinary taxable income, while qualified Roth 401(k) withdrawals generally do not. That difference matters when a pension, Social Security, dividends, or capital gains are already appearing on the return. Ritholtz Wealth Management looks at the monthly paycheck replacement problem first, then at the account label.

At age 73, pre-tax required minimum distributions generally begin. People born in 1960 or later generally begin at age 75 under IRS rules. Roth 401(k) balances are not subject to lifetime RMDs for the owner, which can make them useful later in retirement when taxable income is already high.

A single retiree may have one pension or other stream filling a marginal rate. A married household has combined income, and Yolanda’s pension belongs in Ramon’s comparison even though it did not appear in the simple example. A larger pre-tax balance makes forced withdrawals more consequential, but it still does not prove that paying a higher rate today is wise.

For the years between retirement and RMDs, taxable brokerage assets can give you flexibility because you choose how much to sell. Retirement income planning and a Roth conversion strategy are related decisions, but neither turns a bad current-rate choice into a good one after the fact. Investment values can fall, including the original contributions; favorable tax treatment does not remove market risk.

When the paychecks stop

RMD age is not a tax-rate forecast

Put the election beside the rest of the retirement cash plan

Ritholtz Wealth Management can review a pay stub, plan election, projected retirement date, and the accounts expected to fund early retirement spending, then explain the trade-offs in plain numbers. A second-opinion plan review is useful when your own spreadsheet has an answer but you do not trust its assumptions.

We go over the fee when we first talk and put it on paper before any work starts. Ritholtz Wealth Management does not promise a particular tax result.