When it comes to saving for retirement, you have a lot of options to choose from. One of the most common selections is a 401(k) plan. But depending on the choices your employer offers, the decision-making may not stop there; you may also be able to choose between either a traditional 401(k) or a Roth 401(k).
What is the difference? For the most part, it comes down to taxes, which a Roth 401(k) requires you to pay now instead of later, upon withdrawal, as a traditional 401(k) plan does. While it may seem like it is always better to put off a tax bill, the structure of a Roth 401(k) can be beneficial, particularly in certain situations.
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.
The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
SUBSCRIBE & SAVE
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.
Latest Videos From
Otherwise, the "contributions are made through regular payroll deductions and have the same limits as a tax-deferred 401(k)," said Fidelity. As of 2026, the annual contribution limit for both the traditional and Roth 401(k) is $24,500, up from $23,500 in 2025.
Catch-up contributions are also possible for those 50 and older with a Roth 401(k) — in fact, starting in 2026, high earners may have no choice but to make those additional contributions to a Roth account. Under the Secure 2.0 Act, "catch-up contributions will generally have to be made as Roth if you earned more than $150,000 from your current employer in 2025," said CNBC.
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:
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. And while previously, "any employer-matching contributions were placed into a traditional 401(k) account," it is now the case that "employers can generally deposit matching contributions directly into employees' Roth 401(k) accounts," allowing for the tax-free of those employer contributions as well as tax-free withdrawal, said Kiplinger.
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."
