Is it true that roth IRA: pay taxes now, never pay again on growth?

Roth IRA: pay taxes now, never pay again on growth

Is it true that annual contribution limits: $23,000 (401k), $7,000 (IRA) — adjust for inflation yearly?

Annual contribution limits: $23,000 (401k), $7,000 (IRA) — adjust for inflation yearly

Is it true that the Roth wins if your future tax rate is higher than today?

The Roth wins if your future tax rate is higher than today

Traditional vs Roth

401k, IRA, Roth: which account wins?

The decision between traditional and Roth accounts comes down to one question about your future tax rate.

Quick answer

The four main US retirement accounts are 401(k) (employer plan, $23,000/year limit, often with match), IRA (individual, $7,000/year limit, traditional or Roth), Roth IRA (after-tax, tax-free growth and withdrawals), and HSA (health-linked, triple tax advantage). Always capture the 401(k) match first, then Roth IRA, then back to 401(k), then HSA if eligible.

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Key takeaways

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Traditional 401k: tax break now, pay taxes later
Roth IRA: pay taxes now, never pay again on growth
Annual contribution limits: $23,000 (401k), $7,000 (IRA) — adjust for inflation yearly
The Roth wins if your future tax rate is higher than today

Retirement accounts are tax-advantaged wrappers that reduce how much you pay in taxes. There are two main types:

Traditional (401k / Traditional IRA): You invest pre-tax dollars. You don't pay income tax on the money now — it reduces your taxable income. When you withdraw in retirement, you pay income taxes then.

Roth (Roth 401k / Roth IRA): You invest after-tax dollars. No tax break now. But all future growth — and all withdrawals in retirement — are completely tax-free.

The simple rule: If you'll be in a higher tax bracket in retirement → choose Roth. If you'll be in a lower bracket → choose Traditional.

Most people earning a moderate income today who expect to earn more later should lean Roth. Most high earners who expect lower retirement income should lean Traditional.