Pre-tax, Roth and after-tax: when you pay the tax
Three ways to put money in a 401(k). The only difference is when you pay income tax.
4 min read
When you join a 401(k), you may see 3 choices: pre-tax, Roth and after-tax. All 3 put money in the same account. They can buy the same investments. The only difference is when you pay income tax.
Your account holds 2 kinds of money. Your contributions are the money you put in. Your growth is what your investments earn over the years.
When you pay tax
This table is the whole idea. Each choice pays income tax at a different time.
| Pre-tax | Roth | After-tax | |
|---|---|---|---|
| Tax on your contributions | Later | Now | Now |
| Tax on your growth | Later | Never | Later |
| Also called | Traditional |
- Pre-tax, also called traditional. You skip income tax today. You pay it later, on everything you take out.
- Roth. You pay income tax today. Later, your contributions and your growth come out tax-free.
- After-tax. You pay income tax today, like Roth. But you pay tax on the growth later.
Follow $1,000 through each one
Your tax rate is the part of each extra dollar you earn that goes to income tax. In this example it is 20%, today and in retirement.
You put $1,000 of your pay into each choice. Your investments grow to 4 times their size over the years.
| Pre-tax | Roth | After-tax | |
|---|---|---|---|
| Your pay | $1,000 | $1,000 | $1,000 |
| Income tax today | $0 | −$200 | −$200 |
| Goes into your account | $1,000 | $800 | $800 |
| After it grows 4 times | $4,000 | $3,200 | $3,200 |
| Income tax when you take it out | −$800 | $0 | −$480 |
This is what each one leaves you to spend:
Pre-tax and Roth leave you the same amount when your tax rate does not change. After-tax leaves the least. You pay tax on your pay today, and on the growth later.
Pre-tax or Roth? Compare your tax rate now and later
So the real question is this: will your tax rate be higher today, or in retirement?
Here is the same $1,000 with a different tax rate in retirement. Your tax rate today stays 20%.
| Your tax rate in retirement | Pre-tax leaves you | Roth leaves you |
|---|---|---|
| 10% | $3,600 | $3,200 |
| 20% | $3,200 | $3,200 |
| 30% | $2,800 | $3,200 |
- Your income is low today, or you are early in your career: Roth is often the better choice.
- Your income is high today: pre-tax is often the better choice. You save tax at your highest rate.
- You are not sure: split it. Put some in pre-tax and some in Roth. Nobody knows future tax rates.
Your employer's match usually goes in as pre-tax money. That is true even if you choose Roth.
Where after-tax fits
Most people can skip after-tax. Fill pre-tax or Roth first. In 2026 you can put up to $24,500 into those 2 together.
After-tax is for people who already put in that full amount and want to save more. Some plans let you move after-tax money into Roth. People call this a "mega backdoor Roth". Ask your plan if it allows this.
Words you will see
- Tax-deferred: you pay the tax later, not never. Pre-tax money is tax-deferred.
- Tax-free: you never pay income tax on it, if you follow the rules. For Roth money, wait until age 59½ and until your Roth account is 5 years old.
- Pre-tax still pays some tax today. Social Security and Medicare still come out of your paycheck.
- Taxable account: a regular investment account, outside a 401(k) or an IRA. Some people call this after-tax too. You pay tax on what it earns, often every year.
- Traditional IRA and Roth IRA: the same idea, in an account you open yourself. A Traditional IRA is usually pre-tax. A Roth IRA is Roth.