After-tax Roth vs pretax plan contributions: Which is right for you?

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: For many people, that choice is easy. Why pay now if later is an option?


[music playing]

(Off-camera host)
Your retirement plan lets you contribute money either on a pretax basis or through the after-tax Roth option.

So what’s the difference?

When you make pretax 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 pretax 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, pretax 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 pretax 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 pretax or Roth dollars, schedule time with a TIAA financial consultant.

Visit to find an appointment date. Consultants are available at no additional cost to you as part of your retirement plan benefits.

[music ends]

What are pretax contributions and Roth after-tax retirement plan contributions? 

Pretax Contributions

Retirement plans generally fall into one of two camps based on how your contributions are taxed. The first, and most common, is an employer-sponsored retirement plan where contributions are made before tax, or pretax, usually taken out of your paycheck before taxes and directly invested in your employee retirement plan. These contributions grow tax free but are taxable upon distribution.1

After-tax Roth Contributions

Named for the U.S. senator who sponsored the legislation, Roth contributions are made to your retirement plan after tax. Through a Roth option, you contribute funds after taxes are taken out of your paycheck. The contributions grow tax free and can be withdrawn tax free in a qualified distribution.  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. 

1 Distributions from retirement plans before age 59½, severance from employment, death or disability may be prohibited, limited and/or subject to substantial tax penalties. 

The chart below outlines key similarities and differences for these two types of contributions.

  Pretax contributions Roth contributions
How much can I contribute? Contribute up to IRS limits, which for 2024 are $23,000 or if you're age 50 and older, $30,500. Contribute up to IRS limits, which for 2024 are $23,000 or if you're age 50 and older, $30,500. There are no adjusted gross income (AGI) limits like there are with a Roth IRA.
How do my contributions affect my taxes? Contributions are made before taxes are assessed, which lowers your tax liability for the year you contribute. Contributions are made after taxes have been assessed which has no affect on your tax liability.
How do earnings affect my taxes? Assets grow tax deferred, meaning you don't pay any taxes until you take a withdrawal. Assets grow tax free, meaning you don't pay any taxes on earnings.
Am I taxed on withdrawals? Yes. Because you contributed money before taxes are assessed, you are taxed when you withdraw the money. Withdrawals from a Roth are typically tax free.*
How are my income tax assets taxed if they pass on to my beneficiary(ies)? Your beneficiary(ies) must pay ordinary income tax on any withdrawals. Assets may be passed along to your beneficiaries income tax free.

* 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. For governmental 457(b) plans, withdrawals are only allowed following separation from service or when you reach your RMD Applicable Age. RMD Applicable Age is 70½ if you were born before July 1, 1949; 72 if you were born on or after July 1, 1949, or in 1950; 73 if you were born between 1951 and 1958; and 75 if you were born in 1960 or later. If you were born in 1959, federal guidance is needed to determine if your RMD Applicable Age is 73 or 75.

When should I consider pretax vs Roth after-tax contributions?

While it’s difficult to predict what your future tax situation may be, you’ll want to estimate as best as you can, taking into consideration the best choice for your current tax circumstances and how your situation may change over time. You may want to consult your tax advisor.

If you expect your tax rate during retirement will be:
Your preferred option may be:
Higher than your current rate After-tax Roth contribution
Lower than your current rate Pretax contributions
Equal to your current rate Either or both

Note: Roth contributions are included in your maximum contribution limits, plus any catch-up limits, if applicable.

Comparing Roth after-tax and pretax contributions

The following example will help you compare the differences between making a $3,000 annual Roth after-tax contribution and a $4,000 pretax contribution to your retirement plan. The net impact on your take-home pay will be the same. We show the potential future value of the contributions over 20 years and assume you earn an annual return of 6%.  The future value will depend on what your tax bracket is before and after you retire. The bottom three rows of the chart reveal three possible scenarios. Try to estimate which one best reflects your present and future tax situation. If you expect your tax bracket to increase, the Roth contribution option will clearly make more financial sense. If you predict the reverse, pretax contributions will benefit you more in the long run. 

  Roth after-tax contributions  Pretax contributions 
Annual contribution  $3,000  $4,000 
Annual tax savings  $0.00  $1,000 
Effect on annual income  ($3,000)  ($3,000) 
Future account value  $116,978  $155,971 
Future value (after taxes paid) – assuming 25% bracket before and after retirement  $116,978 $116,978 
Future value (after taxes paid) – assuming 25% bracket while working and 30% bracket after retirement  $116,978 $109,180 
Future value (after taxes paid) – assuming 25% bracket while working and 20% bracket after retirement $116,978 $124,777 
*This illustration is hypothetical and not intended to represent the performance of any specific investment product and cannot be used to predict or project investment performance. Changes and expenses that would be associated with an actual investment are not reflected.

We’re here to help

If you have questions about the Roth contribution option, you can set an appointment with a TIAA financial consultant, or call TIAA at 800-842-2252, weekdays, 8 a.m. to 10 p.m. (ET). We look forward to helping you as you plan for—and live well in—retirement.