A traditional 401(k) takes the tax break now: contributions are made before income tax and withdrawals are taxed later. A Roth 401(k) does the reverse: contributions are taxed now and qualified withdrawals are tax-free. When the tax rate is the same at both ends, the two give the same result, so the choice comes down to today's rate versus the rate in retirement.
What is the difference between a 401(k) and a Roth 401(k)?
Both accounts sit inside the same employer plan. The IRS calls the Roth side a designated Roth account: a separate account in a 401(k), 403(b) or governmental 457(b) plan that holds designated Roth contributions. The contribution is part of taxable pay in the year it is made, and eligible distributions, including the earnings, are generally tax-free.
| Traditional (pre-tax) 401(k) | Roth 401(k) | |
|---|---|---|
| Tax on contributions | None now: pre-tax contribution lowers taxable pay | Taxed now: included in income for the year |
| Tax on withdrawals | Ordinary income tax on contributions and earnings | Tax-free if the withdrawal is a qualified distribution |
| Income limit to contribute | None | None |
| Annual deferral limit (2026) | $24,500, shared with the Roth account | $24,500, shared with the pre-tax account |
| Required minimum distributions during the owner's life | Yes | No |
| Employer match | Goes into a pre-tax account | Goes into a pre-tax account (per IRS guidance) |
The IRS Roth comparison chart confirms the tax treatment, the lack of an income limit and the five-year condition for qualified withdrawals. Its note on required distributions is older than the current rule, which is covered further down.
How does the tax treatment change what you keep?
The key idea is the marginal tax rate, the rate on the next dollar of income. The 2026 federal brackets are 10%, 12%, 22%, 24%, 32%, 35% and 37%, and each rate applies only to the slice of income inside its bracket.
A pre-tax contribution saves tax at the marginal rate of the year it is made. A pre-tax withdrawal costs tax at the marginal rate of the year it is taken. If the first rate is higher than the second, the traditional account wins. If it is lower, the Roth wins. If they match, nothing is gained or lost by choosing either.
Worked example: $10,000 at a 22% rate today
Take a single filer in 2026 with an $80,000 salary. The standard deduction is $16,100, so taxable income is $63,900. That sits in the 22% bracket, which runs from $50,400 to $105,700 for single filers in 2026. Federal tax on $63,900 is $8,770.
Option A, traditional. A $10,000 pre-tax contribution lowers taxable income to $53,900 and tax to $6,570. That saves $2,200, so the contribution costs $7,800 of take-home pay.
Option B, Roth. To keep take-home pay the same, the Roth contribution must also cost $7,800, so $7,800 goes in.
Assume both grow at 6% a year for 25 years, a growth factor of 1.06^25 = 4.2919. This rate is an assumption for the arithmetic, not a forecast.
| Tax rate at withdrawal | Traditional: balance | Traditional: after tax | Roth: balance (tax-free) | Winner |
|---|---|---|---|---|
| 12% | $42,919 | $37,768 | $33,477 | Traditional by $4,292 |
| 22% | $42,919 | $33,477 | $33,477 | Tie |
| 24% | $42,919 | $32,618 | $33,477 | Roth by $858 |
The 22% row is the proof that the account type does not matter on its own: $10,000 × 0.78 × 4.2919 gives the same $33,477 as $7,800 × 4.2919. Only the rate gap decides. Putting the same $10,000 into each account instead of the same take-home cost is a different comparison, because the Roth would then hold more after-tax money; that is why the equal-cost framing is the fair one.
When does a traditional 401(k) tend to win?
- Income is at its peak now. A saver in the 24% bracket who expects to live on less in retirement can deduct at 24% and withdraw at 12% or 22%.
- The deduction matters for other reasons. Lower taxable income can affect other income-based thresholds in the same year.
- Cash flow is tight. The same gross contribution costs less take-home pay.
When does a Roth 401(k) tend to win?
- Income is low now and expected to rise. Early in a career, paying 10% or 12% on the contribution can beat a later 22% or 24% on the withdrawal.
- Tax-free money has extra uses. Qualified Roth withdrawals do not add to taxable income in retirement.
- The pre-tax balance is already large. A large pre-tax balance can push retirement withdrawals into higher brackets; Roth money gives control over the taxable amount each year.
- Estate planning. Roth balances have no required distributions during the owner's life, so they can keep growing.
No one can know future tax law. Brackets set by statute can change, which is why many savers split contributions between both accounts.
What are the rules for Roth 401(k) withdrawals?
A withdrawal is a qualified distribution only if both conditions are met: the account has been held for at least five years, and the withdrawal is due to age 59½, disability or death. The IRS says the five-year period begins on the first day of the taxable year in which designated Roth contributions were first made. A first Roth contribution in December 2026 therefore starts the clock on January 1, 2026, and the five years end on December 31, 2030.
Withdrawals that are not qualified are taxable on the earnings portion. See the qualified distribution entry for the definition.
Do Roth 401(k)s have required minimum distributions?
Not while the owner is alive. The IRS states that there are no required withdrawals from designated Roth accounts in a 401(k) or 403(b) plan during the owner's life, although beneficiaries are subject to the required minimum distribution rules. Pre-tax balances still follow the usual schedule; see the RMD table for 2026. A Roth 401(k) balance can also be rolled into a Roth IRA, which the IRS describes as a permitted rollover.
What are the 2026 limits and the income rules?
The employee deferral limit is $24,500 for 2026, and it applies to the combined amount in pre-tax and Roth accounts: contributing $15,000 to the Roth side leaves $9,500 for the pre-tax side. Catch-up amounts and the total limit including employer money are in the 2026 401(k) limits guide.
Contributions to a Roth 401(k) have no income limit, which makes it the route to Roth savings for people above the Roth IRA income limits. A catch-up contribution rule also changed in 2026: for participants whose prior-year wages from the plan sponsor exceeded $150,000, catch-up contributions must be made as Roth contributions.
How is the employer match treated?
IRS guidance says an employer that matches designated Roth contributions must put the employer match into a pre-tax account. The match is therefore taxed when withdrawn, even if the employee's own contribution was Roth. A plan document sets the details, so the summary plan description is the place to confirm how a given plan handles it.
How to decide in four steps
- Find the current marginal bracket from taxable income (not salary).
- Estimate the likely bracket in retirement from expected pre-tax withdrawals, Social Security and other income.
- If today's bracket is clearly higher, lean traditional; if clearly lower, lean Roth; if close or uncertain, split contributions.
- Capture the full employer match first, whichever account is chosen, then test the result with the Roth IRA calculator and the compound interest calculator.
Educational content only, not tax, legal or investment advice; individual situations and tax law vary.