While many people understand the benefits of traditional 401(k) plans, others remain less familiar with Roth 401(k)s.

Since January 1, 2006, employers have offered workers access to Roth 401(k) plans. As the name implies, Roth 401(k) plans combine features of traditional 401(k) plans with Roth IRA characteristics.1,2,3

With a Roth 401(k), workers contribute after-tax dollars. Therefore, they do not receive a tax deduction upfront. However, qualifying withdrawals remain free from income taxes. In addition, any capital appreciation inside the account also grows tax-free.

What to Choose?

For some individuals, the decision between a Roth 401(k) and a traditional 401(k) depends on tax timing. They evaluate whether upfront tax savings outweigh the benefit of tax-free withdrawals later.

Please remember, this article provides informational content only and does not replace professional advice.Therefore, consult your tax professional before adjusting your retirement strategy to include a Roth 401(k).

Often, this decision does not require an “all-or-nothing” approach.Many employers allow contributions to split between traditional and Roth 401(k) accounts.However, total contributions must remain within annual limits.

Key Considerations

One important consideration involves income restrictions on Roth IRAs.Unlike Roth IRAs, Roth 401(k) plans do not impose income limits. As a result, high-income individuals may benefit when Roth IRA eligibility becomes restricted. (See accompanying table.)

Source: IRS.gov, 2026

Roth 401(k) plans follow the same annual contribution limits as regular 401(k) plans.For 2026, the limit equals $24,500, or $32,500 for individuals over age 50. These limits apply cumulatively across all accounts with a single employer. For example, an individual cannot contribute $24,500 to a traditional 401(k) and another $24,500 to a Roth 401(k).⁴

Another key factor involves employer matching contributions. Employers contribute matching funds with pretax dollars, just as they do with traditional 401(k) plans. However, in a Roth 401(k), these matching funds flow into a separate account. At withdrawal, the IRS taxes those matching funds as ordinary income.

Setting aside money for retirement supports a sound personal financial strategy. Choosing between a traditional 401(k) and a Roth 401(k) requires evaluating multiple financial factors. If uncertainty exists, individuals should work with a qualified tax or financial professional.

Key Rules for Retirement Account Withdrawals and Tax Treatment

1. Roth 401(k) distributions qualify for tax-free and penalty-free treatment only when they meet a five-year holding requirement and occur after age 59½. The IRS also allows tax-free withdrawals in cases of death or disability. However, employer matches remain pretax and become taxable at withdrawal. Once an individual reaches age 73, required minimum distributions must begin.

2. In most cases, individuals must begin required minimum distributions from 401(k) or other defined contribution plans in the year they turn 73. These withdrawals count as ordinary income for tax purposes. If taken before age 59½, withdrawals may trigger a 10% federal penalty.

3. High-income taxpayers cannot make Roth IRA contributions due to income phaseout limits. In 2026, these limits equal $168,000 for single filers and $252,000 for married filing jointly. Roth IRA earnings qualify for tax-free withdrawal only after a five-year holding period and after age 59½. The IRS also allows exceptions for death or disability. Additionally, original Roth IRA owners do not face required minimum withdrawals.

4. IRS.gov, 2026

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.