Two Neighbors Retire With $600,000 Each. His Is in a Roth. Hers Is in a 401(k). Only One of Them Actually Has $600,000
Two neighbors retire with identical account statements, but the numbers tell completely different stories once the government takes its share. The account type matters far more than most retirement calculators let on.
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Two retired people live next door to each other. Each one opens a year-end statement showing $600,000. His money is in a Roth IRA, and hers is in a traditional 401(k). On paper they’re even, and nearly every retirement calculator, net worth worksheet, and planning conversation would score them that way. After taxes, they hold different amounts.
That gap matters more now that more workers hold both kinds of accounts. Starting in 2026, employees 50 and older who earned more than $150,000 (indexed) in the prior year have to put their catch-up contributions into a Roth.
A traditional 401(k) takes money out of a paycheck before tax. She got a tax break on the way in, and she owes ordinary income tax on every dollar she takes out. A Roth is funded with money that’s already been taxed, so qualified withdrawals come out tax-free. Her balance is a gross figure that still includes the government’s share, which was deferred rather than forgiven. His balance is net.
What Her $600,000 Is Worth After Tax
Her real number depends on her tax rate at withdrawal, other income, and state taxes. Assuming she takes out the full balance over time at a combined federal and state rate: At a 15% combined rate, she keeps $510,000. At a 22% combined rate, she keeps $468,000. At a 30% combined rate, which is realistic in a high-tax state, she keeps $420,000.
His Roth remains at $600,000 in every one of those scenarios. In the 30% case, $180,000 of her statement belongs to tax collectors. Her exact figure depends on future tax rates. What’s certain is that the number on her statement includes money she’ll have to pay.
Four Differences Beyond the Tax Bill
Required Withdrawals
Traditional accounts require minimum distributions starting at age 73 for those born between 1951 and 1959, and age 75 for those born in 1960 or later. Roth IRA owners face no lifetime withdrawal requirement. Roth 401(k)s have also been free of this requirement since 2024, though the account owner must still take RMDs from any traditional (pre-tax) balance within the same 401(k) plan.
Knock-On Taxes
Her withdrawals count as ordinary income, affecting how much Social Security gets taxed. Benefits become taxable once combined income passes $25,000 for individuals or $32,000 for married couples.
Above $34,000 for single filers or $ 44,000 for married couples, up to 85% of benefits can be taxed. Medicare reads the same income. In 2026, the standard Part B premium is $202.90 a month. Surcharges start once modified adjusted gross income goes above $109,000 for individuals or $218,000 for married couples.
Social Security generally uses the return filed for two years before the premium year. Qualified Roth withdrawals stay out of both rules, so the Roth is worth more than the after-tax comparison above suggests.
What Heirs Receive
A non-spouse heir of her traditional account generally has to empty it under a 10-year rule, and each withdrawal is taxed as ordinary income. His heir follows the same 10-year window, but Roth beneficiaries generally pay no tax on distributions and don’t have to take annual withdrawals along the way, according to estate planning guidance on the final IRS rules. An heir in peak earning years would add her account withdrawals to her salary, which is where the gap between the two accounts gets widest.
Flexibility in Any Given Year
A retired person with both account types can choose which to draw from each year to stay under Medicare or Social Security thresholds. A traditional account alone gives her no such flexibility.
Where the Traditional Account Comes Out Ahead
She received a deduction for every contribution dollar. A 55-year-old in the 24% bracket making an $8,000 pretax catch-up contribution reduced that year’s federal tax by roughly $1,900. The traditional account wins when the contribution rate passes the withdrawal rate. For high earners who saved during peak-income years and retired into a lower bracket, the deduction already paid them back (the quiet years between retiring and the first RMD are often the cheapest time to convert what’s left, which is the whole subject of a free guide we put together on the Roth window).
Roth Rules That Make This Comparison Hold
Tax-free treatment requires qualified withdrawals: the owner must be at least 59½ and the money must have been in the account for at least five years.
Number Worth Writing Down
Treating the two balances as equivalent exaggerates the traditional account. Applying an estimated tax rate to the traditional balance shows the real number. At a 22% combined rate, her balance becomes $468,000 versus his $600,000. This adjustment changes the retirement savings estimate and is better discovered on a worksheet than at the first withdrawal.
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David Beren has been a Flywheel Publishing contributor since 2022. Writing for 24/7 Wall St. since 2023, David loves to write about topics of all shapes and sizes. As a technology expert, David focuses heavily on consumer electronics brands, automobiles, and general technology. He has previously written for LifeWire, formerly About.com. As a part-time freelance writer, David’s “day job” has been working on and leading social media for multiple Fortune 100 brands. David loves the flexibility of this field and its ability to reach customers exactly where they like to spend their time. Additionally, David previously published his own blog, TmoNews.com, which reached 3 million readers in its first year. In addition to freelance and social media work, David loves to spend time with his family and children and relive the glory days of video game consoles by playing any retro game console he can get his hands on.
