How Much of Your Retirement Should Be Roth?

"Should I do Roth or traditional?" is the most argued-about question in personal finance, and almost every answer you've read is the same sentence:

"Roth if you think taxes will be higher later."

Technically true. Completely useless.

Nobody knows what tax rates look like in 2050.

So let's do this the honest way: the actual math (it's not what you think), the five situations where Roth clearly wins, the three where it quietly loses, and a percentage framework you can use today.

Let's go. 👇

Here's the uncomfortable truth first.

If your tax rate is identical now and later, Roth and traditional produce exactly the same amount of after-tax money. Not approximately. Exactly. Multiplication is commutative.

Watch. $10,000 to invest, 22% rate, 7% return, 20 years:

Dead heat. Which means the entire Roth-vs-traditional debate is about one thing only: the difference between your rate now and your rate then.

But there's a wrinkle that makes Roth quietly better than that table suggests.

Both accounts cap you at $24,500 in 2026. But $24,500 in a Roth 401(k) is $24,500 of after-tax money, while $24,500 in a traditional is really about $19,100 after-tax at a 22% rate.

If you're maxing out, Roth lets you smuggle meaningfully more real wealth inside the same legal limit. For high savers hitting the cap every year, that's a genuine structural edge that the break-even math above misses entirely.

This is the argument that Roth enthusiasts skip, and it's the strongest case for traditional.

When you contribute, you save at your marginal rate — the top of your stack. 24%, 32%, whatever.

When you withdraw, you don't pay your old marginal rate on every dollar. You refill the tax code from the bottom: standard deduction first (taxed at zero), then 10%, then 12%, and so on.

A retiree pulling a moderate income from a traditional IRA can have an effective rate in the low teens even though they deducted at 24% or 32%. That spread is the payoff, and going 100% Roth throws it away.

The mirror-image error.

A statement showing $500,000 traditional and $500,000 Roth looks like a 50/50 split. It isn't. The traditional half carries an embedded IOU to the IRS. At a 20% eventual effective rate it's worth about $400,000 in spendable terms.

Real split: roughly 44% traditional / 56% Roth in after-tax dollars.

If you're going to target a percentage, target it in money you can actually spend — not in balances.

Early career, a gap year, a sabbatical, a business loss, a career switch, the first years after retiring. Anything that drops you into the 10% or 12% bracket makes the deduction nearly worthless and the Roth nearly free.

A 24-year-old in the 12% bracket giving up a deduction is surrendering pennies for decades of tax-free compounding.

The clearest case of all. Someone at 60 with $1.8M traditional, $100k Roth and $50k taxable does not need more future taxable income — they need a counterweight.

Because at 73 (75 for those turning 74 after 2032), RMDs start whether you want the money or not. On a $2M traditional balance, the first RMD is roughly $75,000 of forced income — stacked on Social Security, dragging more of that benefit into tax, and potentially tripping Medicare's surcharge.

Roth IRAs and designated Roth 401(k)s have no lifetime RMDs for the original owner. That's not a small footnote. That's the whole point.

Nobody puts this in the brochure. It's called the widow's penalty.

When one spouse dies, the survivor eventually files as single. Roughly half the standard deduction, brackets that are roughly half as wide. Their income may barely drop — RMDs continue, the larger Social Security benefit continues — but they get squeezed into narrower brackets on it.

Same money, higher rate, for the rest of their life. Roth assets are one of the few things that defuse it in advance.

The SECURE Act mostly ended the "stretch IRA." Most non-spouse beneficiaries must now empty an inherited account within 10 years.

Leave a traditional IRA to a 45-year-old surgeon and they'll be forced to drain it during their peak earning years, at their top marginal rate. Leave a Roth and the 10-year rule still applies — but the withdrawals are tax-free.

If legacy matters at all, Roth is the better asset to hand down, full stop.

Two income-driven cliffs sit in retirement:

Need $20,000 in December? From traditional, it raises AGI and can trigger both. From Roth, it generally raises neither. Same spending, different consequences.

Deducting at 35% and later withdrawing at an effective 15% is one of the best trades in the tax code. Paying 35% today to avoid 15% tomorrow is the same trade run backwards.

Underrated by almost everyone. Deduct against California or New York rates while working, then withdraw as a Florida, Texas, Tennessee or Nevada resident. That state-tax spread alone can be worth several percentage points, and it favors traditional heavily.

(Several states also exempt some or all retirement income — worth checking your specific destination.)

A charity pays no income tax. So the ideal asset to leave it is the one with the biggest embedded tax bill — your traditional IRA.

Same logic while living: from 70½, Qualified Charitable Distributions send money straight from an IRA to a charity, can satisfy your RMD, and never touch your AGI. Converting that money to Roth first would mean voluntarily paying tax nobody was ever going to owe.

These are starting points, not commandments. And notice the last row isn't really about tax rates at all.

A 70% Roth allocation chosen because "Roth is always better" is guessing. The same 70% chosen because you're in the 12% bracket with a rising income and no Roth assets is a strategy.

Five things buried in those numbers:

The Roth 401(k) has no income limit. Roth IRAs phase out; Roth 401(k)s don't. A $400,000 earner locked out of a Roth IRA can still put the full $24,500 into a Roth 401(k). Most high earners don't realize this.

The backdoor Roth — non-deductible IRA contribution, then convert — works around the income limit, but the pro-rata rule taxes it proportionally against all your pre-tax IRA balances. Which is a strong argument for leaving old 401(k) money in a 401(k) rather than rolling it to an IRA.

The mega backdoor Roth. If your plan allows after-tax contributions plus in-plan Roth conversions, the gap between your $24,500 deferral and the $72,000 overall cap can be filled with Roth dollars. Tens of thousands a year. Most plans don't offer it; if yours does, it's the single biggest Roth lever that exists.

SECURE 2.0's Roth catch-up rule bites in 2026. If your prior-year wages from that employer exceeded $150,000, your catch-up contributions generally must be Roth. You may be doing Roth whether you chose it or not — check your payroll setup.

Employer match can now be Roth too under SECURE 2.0, if the plan offers it — but a Roth match is taxable to you in the year received. And never, ever skip the match while optimizing tax buckets. Capture the match first, argue about wrappers second.

The most common way to be wrong about Roth is to assume "Roth = touchable."

Which produces a cheap, unglamorous move: open a Roth IRA with a small contribution today, even $100, just to start the clock. Future you will be glad the calendar was already running.

The window between your last paycheck and your first RMD is the most valuable tax real estate of your life. No salary. Social Security maybe delayed. No forced distributions.

Retire at 62, delay Social Security to 70, and that's eight years of deciding your own taxable income.

The play isn't one giant conversion — that just shoves income into the top brackets. It's bracket-filling: convert precisely enough to reach the top of the 12% or 22% bracket and stop.

Three rules that separate good conversions from expensive ones:

Stop asking "what percent should be Roth?" Ask: can I fund a year of retirement spending without adding taxable income?

Three buckets, three jobs:

A retiree with $900k traditional, $300k Roth and $200k taxable isn't holding $1.4M. They're holding $1.4M plus three levers — and the levers may be worth more than another $100k of balance.

If rates never changed, this argument wouldn't exist — the math is a tie. Everything hinges on the spread between your rate now and your rate then, plus a handful of things a spreadsheet won't show you: RMDs, the widow's penalty, IRMAA cliffs, your heirs' tax brackets, and the state you'll retire in.

So:

Don't optimize for the most Roth. Optimize for the most useful mix — enough traditional to harvest today's deduction and refill the low brackets later, enough Roth to spend without raising your AGI, enough taxable to bridge the gaps.

The best allocation isn't the one that looks impressive on a pie chart. It's the one that still works when the future shows up wearing a different tax code.

See you next issue. 🪙

Penny Brief is for informational and educational purposes only and is not individualized tax, legal or investment advice. 2026 figures (401(k) deferral $24,500; catch-ups of $8,000 and $11,250; IRA $7,500/$8,600; Roth IRA phase-outs of $153,000–$168,000 single/HoH and $242,000–$252,000 MFJ; $72,000 overall defined-contribution limit; the SECURE 2.0 Roth catch-up rule above $150,000 of prior-year wages), RMD ages 73/75, the 85% Social Security inclusion cap, IRMAA's two-year lookback, the SECURE Act 10-year inherited-account rule, QCDs from 70½, and Roth five-year rules reflect current federal guidance and can change; plan rules may be more restrictive. All examples are hypothetical, assume a constant 7% return, and ignore fees and state taxes. Confirm with the IRS and a qualified tax professional before contributing or converting.

Sources: IRS (2026 contribution limits and Roth IRA phase-outs, Roth account rules and five-year periods, RMDs, Roth conversions, QCDs, taxation of Social Security benefits); SECURE Act and SECURE 2.0 provisions (10-year inherited rule, Roth catch-up, Roth employer contributions); CMS (Medicare IRMAA); Social Security Administration.