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 in the same year with identical statements showing $600,000 each. His money is in a Roth 401(k), while Hers sits in a traditional 401(k). On paper, they might look equal, but on paper, where do the similarities stop?

In practice, she still owes income tax on her balance, and he paid his tax years ago. That difference determines how much each of them can actually spend. It matters more now because a rule that took effect in 2026 pushes more older, higher-paid workers into Roth accounts.

Where a $600,000 Balance Ranks Among American Savers

A balance this size puts both neighbors well ahead of the typical worker. Fidelity’s overall average 401(k) balance was at $146,400, and even savers aged 65 to 69 averaged $251,400. A closer match is Fidelity’s group of 15-year continuous savers, people who stayed in the same plan with the same employer. Their average reached $613,200. The two neighbors show what steady, long-term saving can produce.

Most savers at that level are in her position, as Roth 401(k) adoption is 17.5% across Fidelity’s platform, but only 12.2% among baby boomers, a generation that is now retiring. So most of the large balances on retirement statements are pretax money, and the number at the top overstates what the owner can spend.

How Much of Her $600,000 Belongs to the IRS

A traditional 401(k) takes contributions out of the paycheck before tax, and income tax comes due on withdrawals in retirement. A Roth works the other way. An accountant at the American Institute of Certified Public Accountants told The New York Times that savers can “let it grow and take it out tax-free,” generally once they are 59½ and the money has been in the account for five years.

Assume every dollar she withdraws is taxed at 22%. Her balance then works out to $468,000 she can actually spend. His stays at the full amount, so at a lower 12% rate, her spending power is $528,000. Her real balance depends on a future tax rate nobody can know today. That makes a pretax statement balance the most she could ever spend, before any tax comes out.

What the Gap Looks Like Year by Year

The common 4% withdrawal guideline, which Vanguard uses in its own retirement examples, turns each balance into $24,000 a year. He keeps all of it, but at the 22% rate, she keeps $18,720.

Matching his spending requires larger withdrawals from her account. To take home the same amount, she would need to withdraw about $30,800 a year. That drains her account faster and cuts how long it lasts.

Both figures fall far short of a full household budget. The Bureau of Labor Statistics puts average annual household spending at $78,535 for 2024, so both neighbors will depend on Social Security, where the two accounts split again: traditional withdrawals count as taxable income, which can make more of a retiree’s Social Security benefit taxable. Qualified Roth withdrawals generally do not count. Traditional 401(k)s also require minimum distributions, while Roth 401(k)s have been exempt since 2024.

What His Roth Cost Him Before Retirement

He paid for his retirement advantage while he was still working. Every Roth dollar went in after tax, so his paychecks were smaller. The Times noted that the new Roth catch-up rule “may lower their take-home pay” for affected workers. If his tax rate while working was higher than hers in retirement, she could come out ahead overall, especially if she invested her yearly tax savings (the quiet years between a last paycheck and the first required withdrawal are often when conversions get cheapest, something we sized up in a free Roth window guide). A fair comparison counts the tax paid at both ends.

What to Check Before Comparing Balances

The data points to three practical steps for savers approaching retirement:

1. Reduce pretax balances by an expected tax rate before measuring progress. At 22%, a traditional balance of $600,000 is worth closer to $468,000 in spending power.
2. Older workers should check Box 3 on their W-2. Those who earned more than $150,000 must now put catch-up contributions, up to $8,000, into a Roth.
3. Workers aged 60 to 63 can contribute up to $11,250 in catch-up money.
4. Some retirees hold both kinds of money. A tax director at the National Association of Tax Professionals said Roth treatment can provide “flexibility in the timing of withdrawals in retirement,” which helps retirees manage their taxable income each year.

Two identical statements can hide two different retirements. The total balance shows what the account holds. The after-tax figure shows what the owner can spend. Anyone measuring themselves against a retirement benchmark should know which number they are looking at.

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