Authored by Kenji Noguchi

Should you pay taxes now or later? That’s really what the pretax vs. Roth decision comes down to. It sounds simple, but the choice you make today can have a significant impact on how much you keep in retirement. Traditional retirement plans and individual retirement accounts (IRAs) offer two common approaches: pretax or Roth contributions. Despite their similarities, they have distinct features and benefits that make each one better suited to different situations.

If you’d like a side-by-side breakdown you can reference later, we’ve also put together a simple guide you can download at the end of this article.

Pretax contributions are made before income taxes are withheld, which means they reduce your taxable income in the year you make them. This is a real, immediate benefit, especially if you’re in a high tax bracket today.

Contributions to a traditional IRA or 401(k) grow on a tax-deferred basis. You won’t owe taxes on your contributions or earnings until you take money out. At that point, withdrawals are taxed as ordinary income, not at capital gains rates. This distinction matters: even investment gains inside a pretax account are taxed as regular income when withdrawn, which is generally a higher rate than long-term capital gains.

Pretax contributions tend to appeal to investors who want to reduce their tax bill today and expect to be in a lower tax bracket in retirement.

Unlike pretax contributions, Roth contributions are made with after-tax dollars, meaning you’ve already paid income tax on the money before it goes in. The payoff comes later: funds grow tax-free, and qualified withdrawals in retirement are completely tax-free.

To access earnings tax-free, you generally need to be at least 59½ and have held the account for at least five years. For those who expect their tax rate to be similar or higher in retirement, this upfront tax hit can be well worth it.

The core tradeoff is timing. Pretax contributions reduce your taxes now but create a tax obligation later. Roth contributions are taxed now, but your money grows and comes out tax-free. Here’s how they compare across a few key dimensions:

• Tax treatment of contributions: Pretax reduces your current taxable income; Roth contributions are made with after-tax dollars
• Taxes at withdrawal: Pretax withdrawals are taxed as ordinary income; Roth withdrawals are tax-free (if qualified)
• Growth: Both grow without annual taxation, but pretax is tax-deferred while Roth growth is tax-free

Required Minimum Distributions (RMDs): Traditional pretax accounts require RMDs starting at age 73; Roth IRAs do not (though Roth 401(k)s did until SECURE 2.0 eliminated that requirement)

Consider leaning toward pretax if:

• You’re currently in a high tax bracket and expect to be in a lower one in retirement
• You want to reduce your taxable income now, for example, to stay below a certain tax threshold or reduce exposure to Medicare surcharges
• You expect your income to drop meaningfully after you stop working

Think of it this way: a 55-year-old at peak earnings who expects a simpler, lower-income retirement is likely getting more value from the pretax deduction today than they would from tax-free withdrawals later.

Consider leaning toward Roth if:

• You’re earlier in your career and currently in a lower tax bracket than you expect to be at retirement
• You want tax-free income in retirement to complement other taxable sources like Social Security or pension payments
• You want flexibility, as Roth accounts have no RMDs, and contributions (not earnings) can be withdrawn at any time without penalty

A 35-year-old early in their career, for example, may be paying a relatively low tax rate now. Locking in that rate through Roth contributions and letting decades of growth come out tax-free can be a powerful long-term move.

One important note on Roth IRA eligibility: High earners may be phased out of contributing directly to a Roth IRA. For 2026, the phase-out range runs from $153,000 to $168,000 for single filers, and from $242,000 to $252,000 for married couples filing jointly. If your income falls above those ranges, you are not eligible to contribute directly, but a backdoor Roth conversion may still be an option worth exploring with your advisor.

Yes. You can split contributions between pretax and Roth accounts within the same plan year. Many investors do this intentionally to diversify their future tax exposure, as having both taxable and tax-free buckets in retirement gives you more flexibility to manage your tax bill year to year. Just keep in mind that your total contributions across account types cannot exceed the IRS annual limits.

Yes. Converting a pretax account to a Roth is allowed, but you’ll owe ordinary income taxes on the amount converted in the year of the conversion. This is called a Roth conversion, and it can be a smart move if you expect to be in a higher tax bracket later, or if you want to reduce future RMDs. Conversions are most advantageous when done in lower-income years, for example, between retirement and when Social Security or RMDs kick in.

The IRS sets annual limits on how much you can contribute. Here’s where things stand for 2026:

IRA (Traditional or Roth):

• Under age 50: $7,500
• Age 50 and older: $8,600 (includes $1,100 catch-up contribution)

401(k) (Traditional or Roth):

• Under age 50: $24,500
• Age 50–59 and 64+: $32,500 (includes $8,000 catch-up)
• Age 60–63: $35,750 (includes $11,250 super catch-up under SECURE 2.0)

Note that IRA limits are per person, not per household. A married couple can each contribute up to the individual limit, provided each has sufficient earned income.

New for 2026: If you are age 50 or older and earned more than $150,000 in FICA wages in 2025, your catch-up contributions to a workplace plan must be made as Roth (after-tax) contributions. This is a meaningful change for higher earners, and worth confirming with your HR department or plan administrator.

The pretax vs. Roth decision isn’t one-size-fits-all. It depends on where you are today, where you expect to be in retirement, and how you want to manage taxes across your lifetime. Many investors benefit from using both and from revisiting the question as their income and circumstances change.

If you’d like help thinking through which approach fits your situation, download our Pretax vs Roth guide or connect with our team to talk through your options.

Contribution limits sourced from IRS Notice 2025-67, announced November 13, 2025.

This information does not constitute legal advice. Prime Capital Financial and its associates do not provide legal advice. Individuals should consult with an attorney regarding the applicability of this information for their situations.

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. Tax planning and preparation services are offered through Prime Capital Tax Advisory. PCIA: 6201 College Blvd., Suite 150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness | Family Office | Tax Advisory.