Financial essentials
Choosing between pre-tax and Roth after-tax options.
More employees now have the choice of how their contributions to—and withdrawals from—their retirement plans are taxed. Here’s how to think about the pros and cons of pretax and after-tax strategies. Pay now or pay later: Which is right for you?
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The basics: traditional vs. Roth options
| Pre-tax contributions | Roth after-tax contributions |
|---|---|
| Contributions are made before tax, which reduces your taxable income now. But when you withdraw in retirement, you’ll pay taxes on those funds based on your tax rate at the time. | Contributions are made after-tax, so you won’t get an immediate tax break. However, qualified withdrawals in retirement are tax-free |
Your retirement plan lets you contribute money either on a pre-tax basis or through the after-tax Roth option.
So what’s the difference?
When you make pre-tax contributions, the money comes out of your paycheck before your income is taxed.
This lowers your taxable income for the current year, which can save you money now, but you’ll have to pay the taxes when you take the money out in retirement. You’ll also pay taxes on any investment earnings.
With the Roth contribution option, your contribution is taken out of your paycheck after your income is taxed.
This does not lower your current taxable income, but your contributions, and any earnings on them, are tax free when you take the money out later, as long as you’re at least age 59½ or become disabled and your withdrawals are made at least five years after making your first Roth contribution.
Unlike Roth IRAs, you can make Roth contributions to your employer retirement plan no matter how much you make.
With employer-plan Roth contributions, there are no salary limits.
Employer plan contribution limits are also much higher than IRA limits, allowing you to save more in the retirement plan than in an IRA.
Both pre-tax and Roth contributions have potential tax advantages.
If you anticipate being in a higher tax bracket in retirement than you are now, making after-tax Roth contributions may help you because you’ll be able to take out the contributions and earnings tax free.
If you think you’ll be in a lower tax bracket in retirement, pre-tax contributions may be the way to go, because you’ll be paying the taxes when your rate is lower than it is right now.
Knowing what your situation will be is hard to predict, so if you’re just not sure, you could do both, which includes contributing both pre-tax and after-tax dollars in your plan.
In this way, you get the advantages of both and can decide later which contributions to withdraw first.
Now is a good time to review your overall retirement saving and investing strategy to see if you’re on track for your savings goals and if changing your contribution options makes sense for you.
If you’d like help deciding whether to save with pre-tax or Roth dollars, schedule time with a TIAA financial consultant.
Visit TIAA.org/schedulenow to find an appointment date. Consultants are available at no additional cost to you as part of your retirement plan benefits.
A qualified distribution occurs at least five years after the year of your first Roth contribution and is made either on or after you reach age 59½, on account of disability, or to your beneficiaries after your death.
Why Roth after-tax contribution plans are becoming more popular:
Beginning in 2026, if you earned FICA wages1 in excess of $145,000 (indexed annually) in the prior calendar year from the employer sponsoring the plan (401(k), 403(b) or governmental 457(b)) age-based catch-up contributions must be designated as Roth. If your FICA wages from the employer sponsoring the plan were $145,000 or less in the prior year, your employer is not required to designate your age-based catch-up contributions as Roth.
Many savers also opt to contribute to a Roth after-tax contribution option due to its long-term tax benefits, especially those who expect their tax rates to be higher in retirement.
Tax-free growth: After-tax Roth contributions allow your savings to grow-tax free, which can be particularly valuable if you are young or expect to have higher sources of income in retirement. Roth contributions are a hedge against uncertain future tax rates.
No required withdrawals: Unlike pre-tax contributions, Roth after-tax employer plan options don’t require you to take Required Minimum Distributions (RMDs) during your lifetime, giving you more control over when you access your money.
Which option is right for you?
Early career
Roth 403(b) contributions can make sense if you are young and in a lower tax bracket. You’ll pay taxes now at a lower rate, letting your money grow tax-free for retirement.
Mid-career, higher income
A traditional 403(b) option may work best during peak wording years, providing a lower taxable income today while allowing for long-term growth potential.
Approaching retirement
Many who have the option choose a mix of both Roth and traditional contributions. This “tax diversification’ allows for greater flexibility with future withdrawal strategies based on future tax rates.
A balanced approach to retirement planning.
Using both pre-tax contributions and Roth after-tax contribution options can give you a balance of immediate tax savings and tax-free income in retirement. You’ll have the flexibility to decide where to draw funds from based on your future tax situation.
In summary, a Roth after-tax plan option may be ideal if you are focusing on long-term growth with tax-free withdrawals. On the other hand, the pre-tax contribution option can provide you with immediate potential tax savings by lowering your current taxable income while still offering you long-term growth potential.
Remember: starting in 2026 if you are 50 or older and your FICA wages (W2, box 3) were more than $145,000 in 2025 and want to make catch-up contributions it will need to be designated as Roth contributions, provided your plan offers it.
TIAA retirement plan participants can schedule a free call with a TIAA financial professional to review a plan that meets your current and long-term needs.
Make planning decisions with confidence.
When reviewing your retirement plan, you may want to talk through ideas. TIAA retirement plan participants can schedule a free session with a financial professional.
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1 The wage threshold is based on Social Security (FICA) wages
paid to the individual by the employer sponsoring the plan in the prior year.
The TIAA group of companies does not provide legal or tax advice. Please consult your tax or legal advisor to address your specific circumstances. Withdrawals of earnings prior to age 59½ are subject to ordinary income tax, and a 10% penalty may apply. Earnings can be distributed tax free if distribution is no earlier than five years after contributions were first made and you meet at least one of the following conditions: age 59½ or older or permanently disabled. Beneficiaries may receive a distribution in the event of your death.
This material is for informational or educational purposes only and is not fiduciary investment advices, or a securities, investment strategy, or insurance product recommendation. This material does not consider an individual’s own objects or circumstances which should be the basis of any investment decision.