When does a Roth 401(k) make more sense?
There are several key differences between a Roth 401(k) and a 401(k) that may make one option more beneficial than the other


You probably already know if your employer offers a 401(k) plan to help you save for retirement. But there may be another option on offer that you are less familiar with — and in some situations, could serve you even better: a Roth 401(k).
As of 2023, "about 93% of 401(k) plans offer a Roth savings option to workers, up from 62% a decade ago," said CNBC, citing a poll by the Plan Sponsor Council of America. Thanks to the changes spurred by retirement law Secure 2.0, "it's likely the remaining holdouts will soon offer it, too." However, as of now, "many aren't taking advantage of Roth availability: About 21% of eligible workers made a Roth contribution in 2023, versus 74% who made a pretax contribution."
While both types of contributions can benefit retirement preparation, there are key differences between the two savings options that can make one more beneficial than the other in certain scenarios.
The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
What is a Roth 401(k)?
A Roth 401(k) is a type of retirement savings account that allows you to "make contributions with after-tax money, so you won't enjoy a tax break today," said Bankrate. This is in contrast to the traditional 401(k), where contributions are made pre-tax, and you then pay income taxes when you withdraw funds later on. With a Roth 401(k), "any money that you withdraw in retirement will be tax-free," said Bankrate.
Otherwise, "the contributions are made through regular payroll deductions and have the same limits as a tax-deferred 401(k)," said Fidelity. As of 2025, the annual contribution limit for both the 401(k) and Roth 401(k) is $23,500, with additional catch-up contributions permitted for those age 50 and up, according to NerdWallet.
Withdrawals from a Roth 401(k) are penalty-free if "the account has been held for five years or more and the distribution is due to disability or death or on or after age 59 ½," said NerdWallet. Further, said Kiplinger, "thanks to the SECURE 2.0 Act, you no longer must take required minimum distributions (RMDs) from Roth 401(k)s during your lifetime," which traditional 401(k) plans are subject to.
What are the benefits of a Roth 401(k)?
A Roth 401(k) does not offer immediate tax benefits at the time of contributions, as contributions "are made using after-tax dollars" and "don't reduce your taxable income," said Investopedia. However, there are a number of other upsides a Roth 401(k) can offer, including:
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
Tax-free distributions in retirement. With a Roth 401(k), withdrawals are generally tax-free. Essentially, said NerdWallet, you are "giving yourself access to a more valuable pot of money in retirement: $100,000 in a Roth 401(k) is $100,000, while $100,000 in a traditional 401(k) is $100,000 minus the taxes you'll owe on each distribution."
Tax-free growth. "Because the contributions were taxed years ago, they and any investment earnings they generated over the years are tax-free," said Investopedia.
Potential to pay a lower tax rate now rather than later. Another perk of the Roth 401(k) applies to "people who believe they'll be in a higher tax bracket later in life," said Investopedia. In this situation, those individuals will ultimately pay less in taxes with a Roth 401(k) than a traditional 401(k).
Possibility for an employer match. Like with a traditional 401(k), some employers may offer to match a certain percentage of your account contributions, boosting your retirement savings.
When is a Roth 401(k) better than a 401(k)?
The choice between a Roth 401(k) and a traditional 401(k) "largely comes down to your current tax bracket and expectations about your future tax rate," said CNBC.
"I recommend making Roth contributions when someone is in a low bracket and expecting to later be in a higher tax bracket. If you can pay taxes today at 12% to avoid paying taxes in the future at 25%, this is a good deal," said Mark Wilson, CFP and the founder of MILE Wealth Management, to Bankrate. Similarly, you might opt for a Roth 401(k) if "you expect tax rates to rise," said Bankrate.
You do not necessarily have to choose, either — financial planners "generally recommend diversifying among pretax and Roth savings," said CNBC, as "this grants tax flexibility in retirement."
Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.
-
How to put student loan payments on pause
The Explainer If you are starting to worry about missing payments, deferment and forbearance can help
-
The pros and cons of buying a new-build house
the explainer Repairs and maintenance will be minimal on a brand new build — but moving into an existing home can be easier upfront
-
What's the best time of year to buy a house?
The Explainer There are pros and cons to each season
-
How much does it cost to move? Here's how to budget and save.
the explainer Factors like move distance and the weight of your furnishings can affect the total cost — but there are several ways to economize
-
When does a personal loan make sense?
the explainer Personal loans tend to be more flexible and versatile than home, auto or student loans
-
Should you downsize for retirement? Here's what to consider.
The Explainer Moving to a smaller place may seem easier, but there are also some real benefits to staying put
-
What to do if you want to move but don't want to give up your low mortgage rate
the explainer 30-year mortgage rates are currently averaging 7% — and homeowners who secured rates closer to 3% during the pandemic are reluctant to sell their homes
-
Is hands-off investing the way to go?
The Explainer In many cases, your money might be better off left alone