Should you take the tax deduction today or lock in tax-free withdrawals in retirement? Here is how to evaluate the Traditional vs. Roth Solo 401(k) decision.
The core trade-off
- Traditional (Pre-Tax): Contributions reduce your taxable income dollar-for-dollar in the year you make them. Withdrawals in retirement are taxed as ordinary income.
- Roth (After-Tax): You pay taxes on your income today. Your contributions and all compound investment growth come out 100% tax-free in retirement after age 59½.
Rule of Thumb for Freelancers
If you are currently in your peak earning years (e.g. 24%+ federal tax bracket), Traditional contributions provide massive immediate tax relief. If you are early in your career or in the 10%–12% bracket, maxing out Roth options locks in decades of tax-free growth.