Retirement Accounts and Taxes: Traditional vs. Roth (2025)

The whole game is <em>when</em> you're taxed

Retirement accounts don't eliminate tax — they change its timing. A traditional 401(k) or IRA gives you a deduction now and taxes withdrawals later. A Roth gives no deduction now but makes qualified withdrawals in retirement completely tax-free. Choosing between them is really a bet on whether your tax rate is higher today or in retirement.

2025 contribution limits

For 2025 you can contribute up to $23,500 to a 401(k) (plus a $7,500 catch-up at age 50+), and up to $7,000 to an IRA ($8,000 with the catch-up), per the IRS — Retirement Topics: IRA Contribution Limits. Traditional IRA deductibility and Roth eligibility phase out at higher incomes, so check the current thresholds before contributing.

Capture the employer match first

If your employer matches 401(k) contributions, that match is an immediate, guaranteed return — contribute at least enough to capture all of it before funding anything else. Skipping the match leaves free money on the table no investment can replace.

Required minimum distributions

Traditional accounts can't grow tax-deferred forever. Once you reach the RMD age (currently 73), you must withdraw a minimum amount each year and pay tax on it. Roth IRAs have no RMDs during the owner's lifetime — a meaningful advantage for estate planning and flexibility.

A simple order of operations

For many savers the priority is: contribute enough to get the full match, then max an HSA if eligible, then fund a Roth or traditional IRA based on your rate outlook, then return to the 401(k). Adjust for your own income and goals.