Pretax vs. Roth 401(k): What’s the Difference?
When contributing to a 401(k), one major decision is whether to use pretax (traditional) contributions or Roth (after-tax) contributions. The choice matters because it impacts your taxes both now and in retirement. If you are a Pfizer employee in open enrollment deciding on Roth or Pretax, this article is for you.
By: Brennan Decima . October 9th, 2025
Key Takeaways
- Understanding whether or not to contribute to Roth or Traditional can make a big difference in your tax bill
- If you are in a higher bracket today, a Traditional may give you more current tax relief
- 2026 brings new regulations to be aware of
| Feature | Pretax (Traditional) 401(k) | Roth 401(k) |
|---|---|---|
| Tax treatment now | Contributions reduce your taxable income this year | Contributions are made after tax, no deduction now |
| Tax on withdrawals | Withdrawals taxed as ordinary income | Qualified withdrawals are tax-free |
| Required Minimum Distributions (RMDs) | Yes, starting at a specified age | Yes, unless rolled into a Roth IRA (depending on rules) |
| Best for those who | Expect to be in a lower tax bracket in retirement | Expect to be in the same or higher tax bracket later |
Why the Choice Matters
- Tax brackets over time
For many individuals, their tax bracket in retirement is expected to be lower than in their earning years. If you think this applies to you, pretax contributions can give you more tax relief now when your tax rates are higher. On the other hand, if you feel your tax bracket will be the same or higher, or want tax diversity—Roth can help lock in tax-free income down the road. - Flexibility and legacy considerations
Roth accounts offer more flexibility, especially for heirs, since qualified distributions avoid income tax. They can also help reduce tax drag in later years. - Changing rules for catch-up contributions
Starting in 2026, high earners may no longer be able to make catch-up contributions on a pretax basis; those contributions must be Roth (i.e., after-tax).
Also new for 2025: “super catch-up” rules allow workers aged 60–63 to contribute more than the standard catch-up limit. Barron’s+1
2025 Contribution Limits & Catch-Up Rules
- Base contribution limit (under age 50): $23,500
- Catch-up for 50+ individuals: extra $7,500
- Super catch-up (age 60–63): up to $11,250 allowed
- Combined employer + employee contributions are capped at $70,000 in 2025
How to Decide: Pretax or Roth?
Here’s a simple decision roadmap:
- Start with employer match
Always prioritize contributing at least enough to get your employer’s full match — it’s free money. - Evaluate your current vs. future tax rate
- If your current tax rate is high and you expect it to decline, lean pretax. This typically allows more money in your pocket for either debt reduction, additional savings, and higher compounding.
- If you expect higher taxes or value tax-free income later, lean Roth.
- Blend for flexibility
You don’t have to choose one exclusively—many people split contributions between pretax and Roth to balance tax exposure. By seeing where you are in the tax bracket, you can decide if you have some opportunity to do both. - Consider future regulation changes
Catch-up contributions are required to be Roth for some earners starting in 2026, so taking advantage of the deduction where possible may be worth considering. - Don’t forget withdrawals & planning
Withdrawals from pretax accounts will increase your taxable income in retirement. This could impact Medicare Premiums or a surviving spouse’s bracket. Meanwhile, Roth accounts allow you to draw without owing additional taxes or Medicare Premiums.
Key Takeaways
- Pretax contributions give you tax savings now, but you’ll pay taxes later.
- Roth contributions mean you pay tax now, but enjoy tax-free withdrawals later.
- The ideal strategy often involves a mix of both, giving you flexibility and hedging tax risk.
- Be sure to keep an eye on upcoming regulation changes, particularly for high earners and catch-up contributions.
If you would like a free assessment of your taxes and retirement plan, schedule today.
