For decades, 401(k) plans came in one flavor: so-called traditional, where contributions are made with pre-tax dollars and eventual withdrawals are taxed as ordinary income. Now, most 401(k) plans offer employees the option of saving in a Roth 401(k) — no upfront tax break, but withdrawals are 100% tax-free in retirement.

Most savers are sticking with tradition. Vanguard, a major administrator of retirement plans, says about nine out of 10 employees who could use a Roth instead are sticking with a traditional 401(k).

Many plans encourage traditional accounts over Roth by automatically enrolling new employees in the 401(k), and the default option is the traditional.

Saving for retirement is a win, whether it’s in the traditional or Roth. But if your plan offers a Roth, it’s worth considering whether you’d benefit from its delayed gratification payoff.

That’s the challenge with a Roth. You don’t get the upfront tax break, and it’s sooooo hard to make a choice where the payoff — tax-free withdrawals in retirement — doesn’t come for years, if not decades. But thinking about what might work best for our older selves is the secret to retirement planning. Consider these scenarios:

  • Your federal tax bracket today is 10%, 12% or 22%. These are today’s lowest tax rates. If you are single and have $75,000 in taxable income, you fall in the 22% federal bracket, for an annual tax bill of $16,500. If you contribute $7,500 to a traditional 401(k), your taxable income drops to $67,500, and your tax bill is $14,850. Saving $1,650 in taxes today is great.

But let’s look ahead. Let’s say that $7,500 grows to $35,000 over a few decades. If that money is in a traditional 401(k), you’ll owe income tax on every dollar withdrawn. Even if your tax bracket is lower in retirement — as explained below, that’s an assumption that could be wrong — your tax bill will still likely be more than the upfront tax break.

  • Your tax rate doesn’t go down in retirement. A selling point for traditional 401(k)s has been that your tax rate will be lower in retirement. In that scenario, it makes sense to avoid taxes while you’re working and wait to pay tax on withdrawals when you are retired and in a lower tax bracket.

That isn’t necessarily how it will work. In fact, the more you have saved in traditional accounts, the likelier your tax rate may not budge in retirement.

The federal government insists you take money out of traditional 401(k)s and traditional IRAs in retirement, so it can collect tax on the withdrawal. This is the so-called required minimum distribution.

The percentage you must withdraw is based on an IRS formula. Let’s assume 4%. If you have $1 million saved in traditional accounts, that’s $40,000 in taxable income. That also means a portion of your Social Security benefit will be taxed. If you have a pension, that’s also taxable income. Let’s go back to our single filer whose $75,000 in taxable income this year puts him or her in the 22% tax bracket. With $40,000+ in taxable income in retirement, based on current tax law, that person might still be in the 22% tax bracket (figuring 2020 taxable income of between $40,126 and $85,525).

Moreover, it is worth considering that today’s tax rates — which expire at the end of 2025 — are near historical lows. The federal deficit is not. Even if your income drops a lot in retirement, tax rates may be higher. There are plenty of free online retirement calculators.

  • You make a big withdrawal at some point in retirement. Maybe it’s a bucket-list trip, or a year of high medical costs or hiring more help around the house. Pull that extra money out of traditional accounts, and it will increase your taxable income for the year, perhaps enough to bump you into a higher bracket. Pull it out of a Roth, and your extra expenses are covered with tax-free dollars.
  • You’re saving for future generations. If you have all the retirement money you need and keep saving for your heirs, they’ll be very happy to inherit a Roth. They won’t owe any tax on withdrawals. Moreover, money you have saved in a Roth 401(k) can be moved into a Roth IRA when you leave your job, and, once in a Roth IRA, there are no RMDs. You can just leave the money growing for your heirs.

Financial advisers who specialize in retirement planning talk up having “tax flexibility” by adding Roth savings. The simplest way to add Roth savings is to contact your plan and switch your new contributions to a Roth. There is no income limit; everyone in a plan can save in a Roth.

Some plans may also give you the option of converting money you have in your existing traditional 401(k) into a Roth. That is not a move you should consider without consulting a tax pro. When you convert money to the Roth option you must pay income tax on every dollar that is converted. If you convert a large traditional account in a single year, you are all but guaranteed of bumping yourself into a higher tax bracket. A good tax pro can help you determine if a conversion makes sense and, if so, how much you can convert without pushing your taxable income into a higher bracket.

Carla Fried is a freelance personal finance journalist. Distributed by Tribune News Service.