401(k) or Roth? I Ran the Numbers for 35 Years

Neha and Alex are both 30, live in California, and earn $300,000 a year combined. They are trying to decide what happens if they put $49,000 of annual pre-tax earning power toward retirement and choose between taking the tax deduction through their traditional 401(k)s or paying the taxes today and investing the remaining amount in Roth accounts.

I wanted to keep the comparison simple, so I modeled two phases. First, I projected what each account could grow to by age 65 at 6%, 7%, and 8% annual returns. Then I followed both portfolios through retirement from 65 to 85 while Neha and Alex spend $250,000 in their first retirement year, increase that spending by 3% every year, and take Required Minimum Distributions from the traditional account once they begin.

For the traditional 401(k), the full $49,000 is invested because the contribution is made pre-tax.

For the Roth comparison, I assume the same $49,000 first passes through their combined 33.3% marginal federal and California tax rate, leaving approximately $32,700 to invest after tax.

I also assume both amounts increase by 2% every year as the allowed contribution limits rise. Then I ran the portfolios at 6%, 7%, and 8% annual returns.

What do they have at 65?

After 35 years, the traditional account is larger in every return scenario because more money was invested upfront.

At a 6% annual return, the traditional 401(k) grows to approximately $7.38 million, while the Roth portfolio reaches approximately $4.92 million.

At 7%, the traditional balance reaches approximately $9.10 million, compared with $6.07 million in Roth.

At 8%, the balances reach approximately $11.28 million and $7.52 million, respectively.

Those numbers are only the starting point for retirement because Neha and Alex are planning to use these portfolios to fund their lifestyle for the next 20 years.

Retirement starts with $250,000 of annual spending

At age 65, Neha and Alex retire and begin spending $250,000 a year.

Their spending increases by 3% annually, so the amount they need rises every year. By age 75, annual spending is a little over $336,000, and by age 84 it is roughly $438,000.

The Roth portfolio can fund those expenses through qualified tax-free withdrawals. The traditional 401(k) has to distribute more than the amount they actually spend because income taxes are due on the withdrawals. In my 7% base case, Neha and Alex need to withdraw approximately $329,000 from the traditional account in their first retirement year to support $250,000 of spending after tax.

That difference continues throughout retirement because part of every traditional withdrawal goes toward taxes rather than spending.

What happens in the 7% scenario?

At age 65, Neha and Alex begin with approximately $9.1 million in the traditional 401(k) and $6.1 million in Roth. Both portfolios continue earning 7%, while also funding a lifestyle that starts at $250,000 and rises by 3% every year.

For the first ten years of retirement, Neha and Alex withdraw what they need for spending. Once they reach age 75, the traditional account also becomes subject to Required Minimum Distributions.

If the RMD is larger than the amount they need to withdraw for spending and taxes, the excess still has to leave the retirement account. In the model, I assume that excess is reinvested in a taxable brokerage account rather than spent.

By age 85, Neha and Alex still have about $14.66 million inside the traditional 401(k). Over the years, some of their Required Minimum Distributions were larger than what they needed for spending, so after paying tax on those withdrawals, I assumed they reinvested the extra money in a regular brokerage account. That brokerage account grows to about $966,000, bringing their total remaining assets to approximately $15.62 million.

That gives them approximately $15.62 million in total assets under the traditional strategy before accounting for the remaining income-tax liability embedded inside the 401(k).

The Roth portfolio, after funding the same retirement spending from 65 through 84, ends at approximately $9.68 million at age 85.

The traditional number remains larger, but the balances are not directly equivalent because the $14.66 million still sitting inside the traditional 401(k) has never been taxed.

What happens when they die at 85?

For this model, I assume Neha and Alex both die at 85 and leave the remaining assets to their heirs. This makes the tax difference between the two accounts especially important.

The $14.66 million remaining inside the traditional 401(k) does not suddenly become tax-free at death. If it passes to their children or other non-spouse beneficiaries, taxable distributions from the inherited retirement account generally have to be included in the beneficiaries’ income, and most non-spouse beneficiaries must fully distribute the inherited account within ten years.

The $966,000 taxable brokerage account is different because taxes were already paid when those RMD dollars left the 401(k), although future investment gains have their own tax treatment.

The Roth inheritance is also generally subject to inherited-account distribution rules, but qualified distributions from an inherited Roth are generally income-tax-free.

This means that the $15.62 million traditional estate and the $9.68 million Roth estate cannot be compared dollar for dollar. A substantial portion of the traditional estate represents pre-tax wealth on which the family has postponed income tax, while the Roth balance represents money on which the income tax has already been paid.

I would therefore avoid declaring either strategy the winner based only on the ending account balances.

Why RMDs matter

Without Required Minimum Distributions, Neha and Alex could withdraw enough from the traditional account to cover their spending and taxes while leaving the rest invested. RMDs begin to take away some of that flexibility at age 75.

As the traditional account grows, the required withdrawals eventually become larger than what Neha and Alex need for their lifestyle. The excess money is forced out of the tax-deferred account, taxed, and moved into a regular brokerage account.

In the 7% scenario, the traditional strategy would have left approximately $16.33 million at age 85 without the RMD adjustment. After incorporating RMDs, the combined traditional retirement account and taxable side account are worth approximately $15.62 million.

That is a difference of roughly $706,000 in ending estate value caused by money being forced out of tax-deferred growth earlier than Neha and Alex otherwise would have chosen.

The Roth portfolio does not face lifetime RMDs while they are alive, allowing the remaining balance to stay invested throughout their retirement.

The return assumption still changes the outcome

At 6%, Neha and Alex enter retirement with approximately $7.38 million in the traditional account and $4.92 million in Roth.

At 8%, they begin with approximately $11.28 million in traditional and $7.52 million in Roth.

Those starting balances then have to support the same retirement lifestyle: $250,000 in the first year, increasing by 3% annually for 20 years.

A higher return gives both portfolios more capacity to replenish the money being withdrawn each year. For the traditional account, stronger growth can also create larger RMDs later because the required distribution is tied to the size of the remaining account.

The Roth account also benefits from the higher return, while the remaining assets can continue growing without lifetime RMDs during Neha and Alex’s lives.

What I took away from running the numbers

The accumulation phase is straightforward. Traditional starts with more money invested because Neha and Alex have not yet paid income tax on the contribution, so it produces a substantially larger account by 65 across all three return assumptions.

During retirement, both portfolios support the same lifestyle, beginning at $250,000 a year and increasing by 3% annually. The traditional account has to fund both spending and income taxes, while RMDs eventually force additional money out of the account even when Neha and Alex do not need it.

At a 7% return, they reach 65 with roughly $9.1 million in the traditional 401(k) compared with about $6.1 million in Roth. After 20 years of retirement spending and RMDs, they die at 85 with approximately $14.66 million still inside the traditional 401(k), another $966,000 in the taxable account created from excess RMDs, and approximately $9.68 million in the Roth scenario.

The remaining traditional 401(k) balance will generally create taxable income for their heirs as it is distributed, while qualified inherited Roth distributions are generally income-tax-free. That makes the tax character of the ending wealth just as important as the size of the ending balance.

For this analysis, I would stop there rather than trying to convert the entire traditional estate into one after-tax number, because the eventual tax bill depends on who inherits the account, their income and tax brackets, and how the distributions are taken during the inherited-account period.

The purpose of the model is to show how the two structures accumulate, fund the same 20-year retirement, respond to RMDs, and ultimately leave very different kinds of wealth behind.

Modeling notes

Neha and Alex are both 30 in 2026, earn $300,000 combined, retire at 65, and are assumed to die at 85.

The traditional scenario begins with combined annual contributions of $49,000, increasing by 2% per year.

The Roth comparison starts with the same $49,000 of pre-tax earning power but applies an assumed 33.3% marginal federal and California income-tax rate before investment, leaving approximately $32,700 in first-year after-tax contributions.

Investment returns are modeled at 6%, 7%, and 8%.

Retirement spending begins at $250,000 at age 65 and increases by 3% every year through age 84.

Traditional withdrawals must cover both spending and applicable taxes. Required Minimum Distributions begin at age 75, and any excess RMD amount not needed for spending is assumed to be reinvested in a taxable brokerage account.

At death, the model treats the remaining traditional 401(k) as pre-tax wealth that will generally generate taxable income as beneficiaries take distributions. The Roth balance is treated as after-tax wealth, with qualified inherited Roth distributions generally remaining income-tax-free.

The model does not include Social Security, employer matches, Roth conversions, Medicare IRMAA, changes in state residency, estate tax, or the beneficiaries’ individual tax rates.

This analysis is for educational purposes and is not individualized investment, tax, or financial advice.