Tax Strategy Optimization in Retirement Savings: A Comparative Analysis of Pretax vs. Roth 401(k) Contributions Across Income Levels and Time Horizons

The choice between pretax and Roth 401(k) contributions is a cornerstone of tax-efficient retirement planning. For investors across income levels and time horizons, the decision hinges on a nuanced interplay of current and future tax brackets, compounding effects, and legislative shifts. This analysis synthesizes recent research to provide actionable insights for optimizing retirement savings strategies.

1. Current vs. Future Tax Brackets: The Core Dilemma

The foundational principle of tax strategy optimization lies in comparing an individual's current marginal tax rate (MTR) with their projected retirement MTR. For high-earning individuals in the 35% bracket (e.g., those with $505,000+ taxable income in 2025), traditional 401(k) contributions reduce taxable income immediately, deferring taxes to retirement when they may face a lower MTR, such as 24% for married filers according to a Forbes analysis. Conversely, younger workers in lower brackets (e.g., 22% or 24%) who anticipate higher retirement tax rates-due to income growth or policy changes-stand to benefit from Roth contributions, which lock in lower tax rates now and allow tax-free growth, according to a CNBC guide.

A 2023 Bernstein study underscores this dynamic: a $20,000 Roth contribution growing at 7% annually for 25 years yields $1.19 million in tax-free withdrawals, outperforming traditional accounts even after accounting for immediate tax savings Bernstein study. This compounding advantage amplifies over longer horizons, making Roth contributions particularly compelling for those with 30+ years until retirement.

2. Time Horizons: Short-Term Deferral vs. Long-Term Growth

Time horizons dictate the relative merits of each approach. For shorter horizons (e.g., 10 years), traditional 401(k)s often prevail if retirees expect lower tax rates. For example, a 55-year-old in the 24% bracket who retires in 5 years and anticipates a 20% retirement tax rate gains $12,000 in immediate tax savings by deferring taxes, according to a CNBC analysis.

However, for longer horizons (25–40 years), Roth accounts dominate. A 2025 analysis by Kitces highlights that tax-free compounding over decades can offset higher initial tax costs. For instance, a 30-year-old in the 22% bracket who contributes $20,000 to a Roth 401(k) and retires in 35 years-assuming a 30% retirement tax rate-accumulates $2.1 million in after-tax value, compared to $1.4 million for a traditional 401(k) Kitces analysis. This gap widens as tax rates rise or investment returns increase.

3. Income-Level Considerations: High Earners vs. Middle-Income Workers

High-income taxpayers (e.g., those earning $500,000+ in 2025) face unique trade-offs. The Secure Act 2.0 mandates after-tax Roth contributions for highly compensated individuals over 50, complicating legacy planning, as Forbes discusses. For these earners, traditional 401(k)s may offer greater flexibility if they expect to convert to Roth accounts in retirement when tax rates are lower.

Middle-income workers (e.g., 24% bracket) benefit from Roth contributions if they anticipate rising tax rates. A 2023 CNBC case study illustrates this: a 40-year-old earning $150,000 (24% bracket) who contributes to a Roth 401(k) and retires in 25 years-assuming a 28% retirement tax rate-saves $180,000 in taxes on withdrawals compared to a traditional 401(k) (CNBC).

4. Legislative and Geographic Factors

Recent tax policy changes, such as the increased SALT deduction cap for incomes under $500,000, tilt the balance toward traditional 401(k)s for high earners, a point explored in Forbes. Conversely, retirees moving to low- or no-tax states (e.g., Florida, Texas) may favor traditional accounts, as state taxes amplify the effective tax rate on withdrawals (Forbes).

5. Estate Planning and Legacy Goals

Roth 401(k)s excel in estate planning. Unlike traditional accounts, which mandate distributions and tax withdrawals, Roth accounts allow tax-free inheritance. A 2025 Forbes analysis notes that non-spouse beneficiaries can withdraw Roth funds without owing taxes, making them ideal for wealth transfer; a Corebridge calculator illustrates the comparison.

Conclusion: A Personalized Approach

Optimizing tax strategy requires aligning retirement contributions with individual circumstances. High earners with long horizons may blend traditional and Roth contributions, while younger workers in lower brackets should prioritize Roth accounts. Given the uncertainty of future tax rates and legislative changes, consulting a financial advisor to model scenarios-using tools like a Voya calculator-is essential.