Roth 401(k) vs Traditional 401(k)
Same plan, same $23,500 elective-deferral limit, opposite tax timing. Which one wins depends on your current marginal rate vs your retirement marginal rate — and on a half-dozen secondary effects (employer match, in-plan conversions, RMDs, IRMAA stacking).
Side-by-side comparison
| Feature | Traditional 401(k) | Roth 401(k) |
|---|---|---|
| Tax deduction on contribution | Yes — reduces W-2 Box 1 | No — funded with after-tax dollars |
| Tax on qualified withdrawal | Ordinary income (10–37%) | Tax-free (post-59½, 5-yr rule) |
| 2025 elective-deferral limit | $23,500 (shared with Roth side) | $23,500 (shared with Traditional) |
| Age 50+ catch-up (2025) | +$7,500 | +$7,500 (mandatory Roth if W-2 wages > $145k) |
| Age 60–63 enhanced catch-up | +$11,250 (SECURE 2.0) | +$11,250 (SECURE 2.0) |
| Employer match treatment | Always pre-tax (taxable on withdrawal) | Optional Roth (taxable in year of match) per SECURE 2.0 §604 |
| RMDs at 73 | Yes — mandatory | No — exempt starting 2024 |
| In-plan Roth conversion allowed? | Source — convert to Roth side | Destination — receives the conversion |
| Income limit to contribute | None | None (unlike Roth IRA) |
| Triggers IRMAA at withdrawal? | Yes (counts in MAGI) | No |
| Triggers SS taxation? | Yes (counts in provisional income) | No |
Worked example: $23,500 contribution, 30 years at 7%
Three earners each contribute the 2025 max of $23,500. Traditional gives a current-year tax refund at the contribution-year marginal rate, which is invested in a taxable brokerage at 6% net (assumes 22% effective tax on returns). Roth pays tax now and grows tax-free. All withdrawn at age 67 at the assumed retirement rate:
| Earner | Now / retire rate | Roth balance at 67 | Traditional after-tax at 67 | + side brokerage from refund | Winner |
|---|---|---|---|---|---|
| $80k earner | 22% / 22% | $178,800 | $178,800 | $29,700 brokerage | Tie (rate match) — Roth slight edge for RMD/IRMAA optionality |
| $150k earner | 24% / 22% | $178,800 | $183,300 | $32,400 brokerage | Traditional ahead by ~$36,900 lifetime |
| $300k earner | 35% / 24% | $178,800 | $174,100 | $104,200 brokerage | Traditional ahead by ~$99,500 lifetime |
Assumes refund is reinvested in a taxable brokerage; without the refund-investment assumption Roth and Traditional break even when contribution-year and retirement marginal rates are equal. The Roth advantage grows when retirement income includes IRMAA-triggering or SS-taxation-triggering withdrawals.
Frequently asked questions
What's the headline difference between a Roth 401(k) and a Traditional 401(k)?
A Traditional 401(k) is funded with pre-tax dollars — you take a deduction now and pay ordinary income tax on every dollar withdrawn in retirement. A Roth 401(k) is funded with after-tax dollars — no deduction now, but qualified distributions (post-59½ AND 5-year holding) are 100% tax-free. Same employer plan, same $23,500 (2025) elective-deferral limit, opposite tax timing.
How does the employer match work in a Roth 401(k)?
Employer matching contributions can now be deposited directly into the Roth side of the 401(k) under SECURE 2.0 Section 604 (effective 2023+). If you elect this, the match is taxable as ordinary income to you in the year contributed and is reported on Form W-2 Box 12 with code AA (Roth match). Most plans still default to pre-tax matching, so check with HR if Roth match is available.
What are the 2025 and 2026 contribution limits?
For 2025, the elective-deferral limit is $23,500 (under 50), $31,000 (age 50–59), and $34,750 (enhanced catch-up, age 60–63 under SECURE 2.0 Section 109). For 2026, those amounts step up to $24,000 / $31,500 / $35,250 per IRS Notice 2025-67. Roth and pre-tax contributions share the same limit — you can split between them in any ratio.
Do Roth 401(k)s have RMDs?
No — starting in 2024, Roth 401(k) accounts are exempt from Required Minimum Distributions while the participant is alive (SECURE 2.0 Section 325). This matches the long-standing Roth IRA treatment. Traditional 401(k) accounts still have RMDs starting at age 73 (rising to 75 in 2033).
What is an in-plan Roth conversion?
Many 401(k) plans allow you to convert pre-tax 401(k) balances into Roth 401(k) balances inside the same plan, paying ordinary income tax on the converted amount in the conversion year. There is no income limit and no annual cap on the conversion itself. The IRS covers in-plan Roth conversions in in-plan Roth rollover guidance. Best executed in low-income years.
Which one wins for a high earner?
For a 35%+ marginal-rate earner today who expects a 22–24% rate in retirement, Traditional 401(k) usually wins because the deduction is taken at a higher rate than the eventual withdrawal tax. The break-even flips when retirement income includes NIIT-triggering investment income, IRMAA-triggering RMDs, or a mandatory state-tax move. Most high earners should use Traditional 401(k) and put excess savings into a separate Backdoor Roth IRA — see our backdoor Roth calculator.
Which one wins for a younger or lower-income saver?
Roth 401(k) wins decisively when your current marginal rate is below your expected retirement rate. A 22%-bracket worker today who saves aggressively and expects to retire in the 24% or 32% bracket should pay tax now. Roth also wins for anyone wanting tax-rate diversification — having both pre-tax and Roth balances at retirement gives you a withdrawal-source choice each year to manage RMDs, IRMAA, and Social Security taxation.
Should I use both?
Yes — most workers should split contributions to manage tax-rate uncertainty. A common ordering: (1) contribute enough to Traditional 401(k) to capture the full employer match; (2) max a Roth IRA ($7,000 in 2025) directly or via Backdoor Roth; (3) split remaining 401(k) capacity 50/50 between Roth and Traditional unless your marginal-rate forecast is strong in one direction. Run our 401(k) calculator to model both sides.
Try the relevant calculators
- 401(k) Calculator — model employer match, Roth vs Traditional split, and projected balance
- Roth vs Traditional IRA — IRA-side comparison with income limits
- Backdoor Roth Calculator — high earners' workaround for direct Roth IRA contribution
- Roth Conversion Calculator — model an in-plan or IRA Roth conversion
- RMD Calculator — Required Minimum Distributions starting at age 73
- SS Benefits Taxability — how 401(k) withdrawals push Social Security into the 50/85% taxable bands
- IRMAA Calculator — Medicare premium surcharges driven by Traditional 401(k) RMDs