Ten years ago I embarked on my retirement savings journey by opening a Roth IRA. The research I did at the time gave me the conviction to make post-tax contributions in the present—to avoid paying taxes on the projected earnings 35-40 years in the future (while also hedging against the risk of higher taxes). It seemed like a no-brainer. Later, when I had access to a Roth 401(k) at work, I followed suit and contributed even more, rolling that balance over to my Roth IRA between jobs.

But it turns out that I fundamentally misunderstood how our progressive tax system works. In short I’ve been paying the full marginal tax rate on my contributions (25-28% Federal + 9.3% CA), but if I had put that money in a Traditional 401(k) instead, I could have avoided paying those taxes, and I would very likely have paid little to no effective tax on any future distributions (depending on my cost of living in retirement).

I could bend over backwards trying to explain why this is, but instead I’ll refer you to two excellent blog posts on the subject from the travel/finance blog Go Curry Cracker: Turbocharge Your Savings and The Great Roth Controversy. There are a number of other posts within the Financial Independence/Early Retirement blogosphere that explain pretty much the same thing (e.g. The Case Against Roth 401(k)), but maybe you prefer something more academic? Here’s an article from the peer-reviewed Journal of Financial Planning entitled Thinking About a Roth 401(k)? Think Again. TL;DR: unless your annual income exceeds $400k, they recommend that most people contribute to a Traditional 401(k).

Suffice it to say, from this point forward, I’ll be diverting my 401(k) contributions from Roth to Traditional. It only took me ten years to figure this out.