Traditional 401(k) vs. Roth 401(k)
Many employer plans now offer both a Traditional and a Roth 401(k) option, differing in when contributions are taxed, similar to the distinction between Traditional and Roth IRAs but within an employer plan.
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Traditional 401(k)
Contributions are made pre-tax, reducing current taxable income, with withdrawals in retirement generally taxed as ordinary income.
- Reduces taxable income in the current year
- Can be especially useful for higher earners looking to lower current tax liability
- Withdrawals in retirement are taxed as ordinary income
- Required minimum distributions generally apply starting at a certain age
Roth 401(k)
Contributions are made with after-tax dollars, with qualified withdrawals in retirement, including growth, generally tax-free.
- Qualified withdrawals in retirement are generally tax-free
- No income limits restricting eligibility, unlike a Roth IRA
- No upfront reduction in current taxable income
- Required minimum distribution rules have historically differed from Roth IRAs, though this has changed over time — confirm current rules
Which one makes sense for you?
A Traditional 401(k) can suit those prioritizing a lower tax bill today, particularly higher earners in a high current tax bracket. A Roth 401(k) can suit those expecting similar or higher taxes in retirement, or who value tax-free withdrawals later. Some savers split contributions between both for tax diversification.
Key cost factors.
- Current tax bracket compared to expected tax bracket in retirement
- Value of reducing current taxable income versus future tax-free withdrawals
- Whether the employer plan offers both options and any matching contribution rules
- Overall tax diversification strategy across other retirement accounts
Before you decide.
- Does my employer's plan offer both Traditional and Roth 401(k) contribution options?
- How is any employer match treated for tax purposes under each option?
- Would splitting contributions between both options make sense for my tax situation?
Frequently asked questions.
Is a Roth 401(k) subject to income limits like a Roth IRA?
No — unlike a Roth IRA, a Roth 401(k) generally has no income limit restricting who can contribute, since eligibility is based on employer plan participation rather than income.
All figures on this page are illustrative examples for general education, not quotes, appraisals, or guarantees of actual pricing. Actual costs vary by provider, location, project scope, and market conditions — always get a specific quote before making a purchasing decision.
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