Pretax vs. Roth contributions

If you have a retirement plan that offers both pretax and Roth after-tax contributions, you have a choice: Traditional pretax contributions give you an income tax break right away, while Roth contributions provide tax advantages later. 

What are the key differences?

Knowing the difference between Roth contributions and traditional contributions can help you make confident, informed decisions for your future. Compare the two side-by-side:

Pretax: Save on taxes today

Roth after-tax: Save on taxes later

In retirement, pay income taxes on the money you invested and on the earnings when distributed from the plan.

In retirement, receive tax-free withdrawals of the money you invested and the earnings*.

Pay normal income taxes when you withdraw contributions and earnings (You may have to pay a 10% penalty if you withdraw them before age 59 ½).

Pay taxes at your current rate at the time of contribution, and withdraw savings and earnings tax-free if you're at least age 59 ½ and have held the account for five years or more.

Take home more pay today in exchange for paying taxes on your account when you retire.

Take home less pay today in exchange for possibly paying no taxes on your account when you retire*.

*This is applicable if you meet certain conditions.

For both traditional pretax and Roth contributions, if your employer offers matching contributions they're placed in a pretax account and are subject to taxes when withdrawn. 

Roth contributions option may be right for you If:

  • You expect your taxes to be higher in retirement. You may save by paying a lower tax rate on your savings today.
  • You have many years to build your savings. You’ll pay income taxes on what you contribute today, but you may not pay income taxes on the earnings,* which can add up over your working years.
  • You’re well-prepared for the future and would like to have both pretax and Roth after-tax savings in retirement.

Visit for more information about Roth contributions. 

pretax contributions option may be right for you if:

  • You expect your income taxes to be lower in retirement. You may save by lowering your taxable income now and waiting to pay taxes on your savings until after you retire.
  • You aren’t well-prepared for retirement. Saving on a pretax basis allows you to save in your plan while enjoying current tax savings.

Consider both

Not sure which type of contribution is right for you? Your plan may allow you to make both traditional and Roth contributions. Timing some of your tax savings now and some later could help you balance the effects of taxes, no matter what happens in the future.

You can take it with you

If you leave your employer, you can roll over your Roth account into another designated Roth account or a Roth Individual Retirement Account (Roth IRA).  You can roll over your pretax account into an eligible retirement plan or an IRA. See if an IRA is right for you.

Note: Similar concepts about the timing of tax savings apply to Roth and traditional IRAs.