Pre-Tax vs. Roth: Why Traditional Contributions Often Make More Sense in Your Highest-Earning Years

When people hear the word Roth, the reaction is usually immediate: it must be the better option.

After all, the appeal is easy to understand. Roth accounts offer tax-free growth and tax-free withdrawals in retirement. The idea of paying taxes today and never worrying about them again feels safe and predictable.

Because of this, Roth accounts receive a great deal of attention in financial media and everyday conversations. In many cases they are presented almost as the default choice.

But when you step back and examine the math behind retirement contributions, the decision between Roth and traditional pre-tax accounts is not about which one sounds more appealing. It is about timing — specifically when taxes are paid and at what rate.

For individuals in their highest earning years, traditional pre-tax contributions often provide a meaningful advantage.

The Key Question: Your Tax Rate Today vs. Later

At its core, the Traditional vs. Roth decision comes down to comparing two numbers:

• The tax rate you pay when you contribute
• The tax rate you pay when you eventually withdraw the money

If you pay a higher tax rate today than you will later, traditional pre-tax contributions typically produce the better result.

If you pay a lower tax rate today than you will later, Roth contributions can be more advantageous.

And if the tax rate is the same at both points in time, the outcome is mathematically identical.

That last point often surprises investors, so it helps to see a simple illustration.

When the Tax Rate Is the Same

Imagine you have $2,000 of income available to save for retirement, and your tax rate today is 25%. Assume your tax rate in retirement will also be 25%, and the investment grows fivefold over time.

Traditional Pre-Tax Contribution

You invest the full $2,000 today.

After many years, the account grows to $10,000. When you withdraw the money in retirement, it is taxed at 25%, leaving you with:

$7,500 after tax

Roth Contribution

You first pay taxes on the $2,000. At a 25% rate, that leaves $1,500 to invest.

If that investment also grows fivefold, it becomes $7,500. Because Roth withdrawals are tax-free, you keep the entire amount.

$7,500 after tax

Despite the different structures, the final outcome is identical.

The traditional account had a larger starting balance because taxes were deferred. The Roth account started smaller but avoided taxes later. When tax rates are the same at both stages, the math balances out.

The real advantage only appears when the tax rate at contribution differs from the tax rate at withdrawal.

Why High Earners Often Benefit From Pre-Tax Contributions

Many professionals reach a stage in their careers where their income peaks. During those years, they are often in some of the highest tax brackets they will ever experience.

Traditional retirement contributions allow them to deduct those contributions at those high tax rates.

For example, consider someone earning $500,000 annually who contributes $20,000 to a traditional retirement plan. If they are in a combined federal and state tax bracket of roughly 40%, that contribution could reduce their tax bill by around $8,000 in that year alone.

That is money that remains invested rather than being paid to the IRS.

The key question then becomes: Will those dollars ultimately be taxed at the same high rate when they are withdrawn later?

For many people, the answer is no.

Retirement Income Is Often Lower Than Peak Earnings

Retirement typically looks very different from peak earning years.

Several factors tend to reduce taxable income over time:

• Mortgages are often paid off
• Children are no longer financially dependent
• Retirement savings contributions stop
• Work-related expenses disappear

Equally important, retirees gain much more control over their income.

Instead of earning a fixed salary, retirees decide how much money to withdraw from their accounts each year. Withdrawals can be coordinated across taxable accounts, retirement accounts, and other income sources.

Social Security benefits may only be partially taxable. Investment income can be managed strategically. Withdrawals from retirement accounts can be spaced across years to manage tax brackets.

As a result, many retirees find themselves paying lower effective tax rates than they did during their working years.

When contributions are deducted at a high tax rate and later withdrawn at a lower rate, the difference becomes a permanent tax benefit.

The Often-Overlooked “Conversion Window”

Traditional accounts also provide a powerful planning opportunity that many investors overlook.

Many retirees experience a period of temporarily low income after they retire but before other income sources begin.

For example:

• Retirement at age 60
• Social Security begins at 67
• Required Minimum Distributions begin at 73

During the years between retirement and these income sources, taxable income may be significantly lower.

This creates an opportunity to perform Roth conversions — gradually moving money from traditional accounts into Roth accounts while intentionally staying within moderate tax brackets.

For example, a retiree might convert $100,000 per year while remaining within the 22% tax bracket.

In simple terms, the strategy looks like this:

• Deduct contributions during working years at 35–40% tax rates
• Convert portions of those accounts later at 22–24% tax rates

That spread between the two rates represents a meaningful tax advantage.

If those same contributions had been made to a Roth during peak earning years, that opportunity would disappear because the taxes would already have been paid at the higher rate.

What About Rising Future Tax Rates?

A common argument for Roth contributions is the belief that tax rates will be significantly higher in the future.

It is certainly possible that tax policy will change over time. Historically, tax rates have moved both higher and lower depending on economic conditions and political priorities.

However, the more relevant question for most investors is not simply whether national tax rates rise, but whether their personal tax rate in retirement will be higher than it is today.

Even if tax brackets increase somewhat in the future, many retirees still experience lower overall taxable income than they did during their peak earning years.

For example:

A professional earning $500,000 today might fall into the 37% federal tax bracket.

After retirement, their income might consist of:

• $60,000 Social Security
• $80,000 retirement withdrawals
• $20,000 investment income

That $160,000 of total income could place them in a much lower bracket, even if tax rates themselves are slightly higher than they are today.

In other words, your future tax bracket depends on your future income, not just future tax laws.

For many high earners, retirement income is still substantially lower than their peak working income, which means the tax rate applied to withdrawals may still be lower.

When Roth Contributions Do Make Sense

None of this suggests that Roth accounts are a bad strategy. In fact, Roth dollars can be extremely valuable.

Tax-free withdrawals can provide flexibility when managing income in retirement, especially when trying to avoid higher tax brackets or Medicare surcharges.

Roth accounts are often particularly useful for:

• Individuals early in their careers
• Investors currently in lower tax brackets
• Those expecting significantly higher income later in life
• Estate planning strategies involving heirs

In these situations, paying taxes today may be very reasonable.

The Value of Tax Diversification

For many households, the best strategy is not choosing one account type exclusively.

Instead, building a mix of traditional and Roth assets can provide valuable flexibility.

During peak earning years, leaning more heavily toward traditional contributions can capture meaningful tax deductions. Over time, Roth contributions, backdoor Roth strategies, or targeted Roth conversions can build tax-free assets as well.

This approach — often called tax diversification — allows retirees to draw income from different sources depending on their tax situation each year.

Having both options provides significantly more planning flexibility than relying on one type of account alone.

Final Thoughts

Roth accounts have become extremely popular in recent years, and for good reason. Tax-free withdrawals are appealing and can play an important role in retirement planning.

However, for individuals in their highest earning years, traditional pre-tax contributions often deserve more attention.

If contributions can be deducted at a high tax rate today and later withdrawn at a lower rate, the difference represents a direct tax advantage that compounds over time.

The goal is not to choose Roth or traditional automatically, but to understand how your tax situation is likely to evolve throughout your life.

Taxes are one of the largest lifetime expenses most people face. Thoughtfully managing when you pay them can have a meaningful impact on long-term wealth.

Disclosure

This material is for informational and educational purposes only and should not be considered personalized investment, tax, or legal advice. Examples are simplified for illustration. Individual results depend on income, tax laws, state taxes, and personal circumstances. Please consult your CPA or financial professional before making financial decisions. Brooks Wealth Management is a Registered Investment Advisor. Investing involves risk, including the potential loss of principal.