Roth 401(k) vs Traditional 401(k): Which Should High Earners Actually Choose?

The advice sounds sensible: contribute pre-tax now, pay taxes later when your income drops. For a lot of high earners, that logic has a serious flaw. Income in retirement does not always drop as much as expected, and the accounts you build today shape whether it drops at all.

The Bracket-Arbitrage Math Most Advisors Understate

The Roth vs. traditional decision is fundamentally a bet on your future marginal rate versus your current one. If you are in the 32% or 35% bracket today, the traditional contribution saves real money now. But retirement income does not appear in a vacuum.

A high earner who retires with a $3 million traditional 401(k) balance, Social Security, and a brokerage account will face Required Minimum Distributions starting at age 73. At that point, those RMDs are fully ordinary income. Add Social Security, and a meaningful portion of it becomes taxable too. It is not unusual for a couple to land back in the 22% or 24% bracket, sometimes higher, even though they no longer have a salary.

The 2026 federal brackets show the 24% bracket running up to roughly $206,700 for single filers and $413,400 for married filing jointly. If your RMDs alone push you into that range, the "lower bracket later" assumption evaporates.

The Hidden Cost of an All-Pre-Tax Balance

Large traditional 401(k) balances create two compounding problems that compound together.

First, RMDs grow with the account. The IRS divisor does not change, but the account balance does. A $3 million balance at 72 produces a very different first RMD than a $1.5 million balance does. Each dollar added pre-tax today is a dollar that will be forced out on the government's schedule, not yours.

Second, ordinary income from RMDs feeds directly into Medicare's IRMAA surcharges. In 2026, single filers with modified adjusted gross income above $106,000 (and married filers above $212,000) begin paying premium surcharges on Medicare Parts B and D. Those thresholds are not indexed aggressively, and a large RMD can trigger thousands of dollars in additional annual premiums with no warning in the year the income hits.

This is where the Soil layer of your plan does its work. Tax-source diversification, having money in pre-tax, Roth, and taxable accounts, is what gives you control over your taxable income in retirement rather than letting RMD schedules control it for you.

When a Mix Is Actually Right

A Roth 401(k) contribution is not always the correct answer, even for high earners. If you are having a genuinely outlier income year and you expect your tax rate to meaningfully compress in three to five years, the traditional contribution earns its keep. The math has to work on actual numbers, not assumptions.

For most HENRYs in stable high-income careers, the answer is a blend: enough traditional contributions to reduce current-year taxable income in the highest brackets, and enough Roth contributions to build a tax-free pool that RMDs cannot touch and IRMAA cannot count. The 2026 employee contribution limit is $23,500, with a $7,500 catch-up for those 50 and older, and you can split that between Roth and traditional in any proportion your plan allows.

What to Do This Week

Pull your most recent pay stub and calculate your year-to-date income. Then look at what your 401(k) election currently says. If it is 100% traditional, ask your advisor to model your projected RMDs at 73 based on your current trajectory. That one projection changes the conversation.

The information provided is for educational purposes only and does not constitute investment, legal, or tax advice. Consult with qualified professionals for guidance specific to your situation.