The traditional 401(k) is a workplace retirement savings plan that allows you to save for retirement with contributions taken straight out of your paycheck—before taxes. Those automatic contributions are a super convenient way to make sure you’re consistently building your retirement savings, which is awesome.
And that plan—the traditional 401(k)—was the only game in town until 2006. That’s when a new contender entered the ring: the Roth 401(k).
The Roth 401(k) combines some features from the traditional 401(k) with the tax advantages of the Roth IRA. In fact, those tax advantages are the main reason the Roth 401(k) beats the traditional 401(k)hands down.
We’re such big fans of the Roth plan that in a Roth 401(k) vs. 401(k) showdown, we’d go with Roth every time! You want to make the best decision for your retirement goals, right? Let’s dig in and compare the options.
There are a lot of people who don’t know which retirement account is best for them. The debate between Roth 401(k) and traditional 401(k) plans has been going on for years, and for good reason. What you decide today can have a HUGE effect on how much money you have in retirement tomorrow.
As a financial advisor who has helped hundreds of clients in this exact situation, I’m going to explain why a Roth 401(k) might be the better choice for many people. But don’t worry—I’ll be fair and balanced, so you can choose what’s best for YOU.
The Tax-Free Golden Ticket: Understanding the Roth Advantage
To cut to the chase, the main difference between these two retirement plans is when you pay taxes on them.
- Traditional 401(k): Contributions reduce your current taxable income (pre-tax), but you’ll pay taxes on EVERY PENNY you withdraw in retirement.
- Roth 401(k): Contributions are made with after-tax dollars, but qualified withdrawals in retirement are completely TAX-FREE.
This fundamental difference creates a ripple effect that impacts everything from your current paycheck to your retirement lifestyle decades from now.
5 Compelling Reasons Why Roth 401(k)s Often Win the Retirement Race
1. Tax-Free Growth and Withdrawals
When you set up a Roth 401(k), you essentially lock in your current tax rate. You will have to pay taxes on the money you put into the account now, but after decades of investing, it will grow tax-free.
Think about it this way: If you have $1 million in a traditional 401(k) at retirement, you might only get to keep $700,000-$800,000 after taxes (depending on your tax bracket). But if that same $1 million is in a Roth 401(k)? It’s ALL YOURS.
As Dave Ramsey’s team puts it: “You’ve got to think about these things with a long-term mindset. You’re already working hard to save for retirement. Why wouldn’t you do all you can to make sure that money goes even further when you need it most?”
2. No Required Minimum Distributions (RMDs)
Thanks to changes in retirement legislation (SECURE 2.0 Act), Roth 401(k)s no longer have required minimum distributions during the original account owner’s lifetime. This means:
- You can leave your money invested for as long as you want
- You control when you take withdrawals based on your needs, not IRS rules
- Your money can continue growing tax-free indefinitely
Traditional 401(k) owners, however, must start taking withdrawals at age 73, whether they need the money or not.
3. Protection Against Future Tax Rate Increases
Let’s be honest – nobody knows what tax rates will be in 20, 30, or 40 years. But looking at government spending and national debt trends, many experts believe tax rates could increase over time.
With a Roth 401(k), you’re immune to these potential increases. You’ve already paid your tax bill! A traditional 401(k), however, leaves you vulnerable to whatever tax rates exist when you retire.
4. More Valuable Inheritance for Your Heirs
If leaving money to your kids or grandkids is important to you, a Roth 401(k) provides a significant advantage. Your beneficiaries can receive tax-free distributions from the inherited Roth account.
With a traditional 401(k), your heirs will have to pay income taxes on any distributions they take from the inherited account.
5. No Income Limitations
Unlike Roth IRAs, which have income limits that prevent high-earners from contributing directly, there are NO income restrictions for Roth 401(k) contributions. This makes them a fantastic option for higher-income individuals who want the benefits of Roth-style retirement savings.
When Traditional 401(k) Might Be the Better Choice
I wouldn’t be giving you the full picture if I didn’t mention when traditional 401(k)s might make more sense:
- You’re currently in a very high tax bracket (35%+) and expect to be in a much lower bracket in retirement
- You need the immediate tax deduction to maximize your current cash flow
- You’re close to retirement and won’t benefit from decades of tax-free growth
- You live in a high-tax state now but plan to retire in a state with no income tax
As Kristin McKenna notes in Forbes, “If you’re in a higher tax bracket now than you expect to be in retirement, then it generally doesn’t make sense to make Roth 401(k) contributions over pre-tax options.”
Contribution Limits: Identical but Important
For 2025, both Roth and traditional 401(k) plans have the same contribution limits:
- $23,500 for those under age 50
- $31,000 for those age 50 and older (including the $7,500 catch-up contribution)
- $34,750 for those age 60-63 (thanks to a special catch-up provision in 2025)
Remember, these limits apply to the COMBINED total if you contribute to both types of accounts within the same year.
Employer Match Considerations
Here’s something important to know: Until recently, your employer’s match always went into a pre-tax account, even if you were contributing to a Roth 401(k). However, since 2024, employers CAN provide matching contributions on an after-tax basis too, if they’ve structured their plan to allow this.
Check with your HR department to understand exactly how your employer’s match works. Some companies are even beginning to offer 401(k) matches for student loan payments!
The Hybrid Approach: Using Both Account Types
If you’re really stuck on which account to choose, remember this: It’s not always an either/or decision! Many financial advisors recommend a hybrid approach:
"You can contribute to both a traditional and Roth 401(k) as long as combined contributions don't exceed the annual maximum." - NerdWalletContributing to both types of accounts creates tax diversification in retirement. This gives you more flexibility in managing your tax situation when you’re no longer working.
Making Your Decision: A Simple Framework
To help you decide which account type is better for your situation, ask yourself these questions:
-
Do you expect your tax rate to be higher or lower in retirement?
- Higher in retirement → Roth likely better
- Lower in retirement → Traditional likely better
-
How far are you from retirement?
- Decades away → Roth often better (more time for tax-free growth)
- Close to retirement → Traditional might make more sense
-
How important is financial flexibility in retirement?
- Very important → Roth offers more flexibility
- Less important → Either option works
Real World Example: The Million-Dollar Difference
Let’s say you’ve been a diligent saver and accumulated $1,000,000 in your retirement account by age 65. Here’s how the numbers might look:
Traditional 401(k):
- Account value: $1,000,000
- Taxes due on withdrawals: $240,000 (assuming 24% tax bracket)
- Net retirement funds: $760,000
Roth 401(k):
- Account value: $1,000,000
- Taxes due on withdrawals: $0
- Net retirement funds: $1,000,000
That’s a $240,000 difference! And that’s not even considering the taxes on future growth or required minimum distributions.
The Bottom Line: Why I Often Recommend Roth
After working with hundreds of clients across different income levels and life stages, I’ve found that most people underestimate how valuable tax-free growth can be over time. While there are certainly situations where traditional 401(k)s make more sense, the benefits of Roth 401(k)s are compelling for many workers:
- Tax-free withdrawals in retirement
- No required minimum distributions
- Protection against future tax increases
- Better wealth transfer options for heirs
- Available to high-income earners who can’t contribute to Roth IRAs
Remember, this isn’t a one-size-fits-all decision. Your personal financial situation, career trajectory, and retirement goals all play important roles in determining which account type is truly “better” for you.
But if you’re looking for a retirement account that offers maximum flexibility, tax advantages, and peace of mind, the Roth 401(k) deserves serious consideration. After all, wouldn’t you rather deal with the tax bill now, when you know exactly what it is, than leave it as a potentially larger unknown for your future retired self?
What retirement accounts are you currently using? Have you made the switch to Roth contributions? I’d love to hear about your experiences in the comments below!
Roth 401(k) vs. Traditional 401(k): How Are They Similar?
Traditional and Roth plans have some of the same features. Both give you the chance to make automatic contributions to your 401(k) straight from your paycheck, which makes saving for retirement a breeze. And in most cases, you get access to the same investment options with either plan.
Both types of 401(k) plans usually come with a company match too. That means your employer promises to contribute money into your account up to a certain amount (that’s free money, so definitely take advantage of it!). The match in a Roth plan can differ, but we’ll talk more in the next section about how that works.
If you have student loan debt, some employers now offer a 401(k) match on your student loan payments. Check with your HR department to see if that’s an option for you!.
Traditional and Roth 401(k)s also have the same contribution limits:
- You can put up to $23,500 into your 401(k) in 2025. That amount was $23,000 in 2024 (the IRS usually changes the limit every year based on inflation).
- There is also a nice little catch-up rule for people who are almost retirement age. In 2025, most people aged 50 and up can add another $7,500, for a total of $31,000.
- New for 2025, if you are between the ages of 60 and 63, you can take advantage of a higher catch-up provision that lets you add an extra $11,250, for a total of $34,750. 2.
- It is legal for your employer to put even more money into your retirement account than you do. The total amount that could be contributed was $69,000 in 2024, but it has been raised to $70,000 for 2025. This means that if you contribute the most, which is $23,500, the government can legally match that amount up to $46,500. 3.
So, the Roth 401(k) includes some of the best features of a traditional 401(k). Awesome, right? Hang on, because the Roth 401(k) gets even better.
Roth 401(k) vs. Traditional 401(k): How Are They Different?
Now that we’ve talked about what the two types of 401(k)s have in common, let’s look at what makes them different. That includes how your contributions are treated, what happens when you withdraw money in retirement, and your ability to access your funds before and after you retire.
| Roth 401(k) | Traditional 401(k) | |
| Contributions | Contributions are made with after-tax dollars (that means you pay taxes on that money now). | Contributions are made with pretax dollars (which lowers your taxable income now, but you’ll pay taxes later in retirement). |
| Withdrawals | The money you put in—and its growth—aren’t taxed when you withdraw it (score!). However, your employer match is subject to taxes. | All withdrawals will be taxed at your ordinary income tax rate. Most state income taxes apply too. |
| Access |
If you’ve held the account for at least five years, you can start taking money out tax- and penalty-free once you reach age 59 1/2. You or your beneficiaries can also receive distributions due to disability or death. There are no required minimum distributions. |
You can start receiving distributions tax- and penalty-free at age 59 1/2, no matter how long you’ve had your 401(k). You or your beneficiaries can also receive distributions due to disability or death. There are required minimum distributions. |
The main difference between traditional and Roth 401(k)s is how your contributions are taxed. A Roth 401(k), for example, is an after-tax retirement savings account. That means your contributions go into your Roth account after they’re taxed. Basically, you’re paying taxes now so you don’t have to pay later.
But the traditional 401(k) is a pretax retirement savings account. When you invest this way, your money goes in before it is taxed. This can lower your taxable income every year on Tax Day. You’re just putting things off until later, though, because you’ll have to pay taxes on that money when you retire. You can’t escape the tax man forever.
If you have a traditional 401(k), you’ll pay taxes on any amount you withdraw in retirement based on your income tax rate at that point in time. But with a Roth 401(k), because you already paid taxes on your contributions, the withdrawals you make in retirement are tax-free.
This may sound like something only Captain Obvious would say, but your retirement savings will last longer if you don’t have to pay taxes on your withdrawals. That’s why Roth plans have a huge advantage over traditional retirement savings accounts—and why you should take advantage of all the Roth options you have.
Okay, now let’s talk about that employer match. Until recently, your employer’s contributions had to go into a separate pretax bucket, even if you had a Roth plan. However, since 2024 (under Section 602 of the SECURE 2.0 Act), your employer’s match can be after-tax instead of pretax, as long as theyve structured your workplace plan that way.4
Want an example of how it works? Let’s say you have $1 million in your nest egg when you retire. That’s a pretty nice stash! If it’s in a traditional 401(k), every penny you withdraw in retirement is subject to income taxes. Depending on your tax bracket and what the tax rates are when you retire (and who knows what those will be), you could owe hundreds of thousands of dollars in taxes throughout your retirement. But if your retirement savings are parked in a Roth 401(k), most, if not all (depending on how your employer structured their match under the SECURE 2.0 Act), of that $1 million is all yours, since you already paid taxes on it.
Why Should I Choose A Roth 401(k) Over Traditional?
FAQ
Why is a Roth 401k better than a regular 401k?
The Roth 401(k) is better because growth and withdrawals are tax-free in retirement. This means that future tax rates won’t change your savings (since May 13, 2025).
Is there a downside to a Roth 401k?
The main disadvantages of a Roth 401(k) are the lack of an immediate tax deduction on contributions, which can lower your current take-home pay, and the fact that you pay taxes on contributions when you would otherwise deduct them with a traditional 401(k). This makes a Roth 401(k) less appealing for those in their current high tax bracket who expect to be in a lower one in retirement.
Should I switch from traditional 401k to Roth?
General rule of thumb is contribute to a Traditional if you are a high income earner and are in a higher tax bracket and do a Roth if you think your income will be higher in retirement.
Who benefits most from a Roth 401k?
That being said, younger workers may benefit more from Roth contributions because they tend to be in the lowest tax bracket of their career when just starting ….
Is a Roth 401k better than a traditional 401(k)?
The answer to that question is crucial because of the different tax treatments of a traditional vs. a Roth 401 (k). The rule of thumb is if you think you’ll be in a lower tax bracket in retirement than you are now, then a traditional 401 (k) makes more sense. Why? You’ll pay less taxes on your 401 (k) withdrawals in retirement.
Can a traditional 401(k) be converted to a Roth 401 (k)?
A: Yes. If you need to lower your taxable income right away, like high earners who want to take deductions, a Traditional 401(k) gives you a tax break right away that a Roth 401(k) doesn’t. Q: Can I switch my 401 (k) contributions from Traditional to Roth later?.
Should you consider a Roth 401(k)?
Let’s start with today: if you prefer to pay taxes now, or you think your tax rate will be higher in retirement than it is now, consider a Roth 401 (k). By paying taxes on that money now, you’re protecting yourself from tax rates that might go up when you retire.
Which 401(k) plan is better?
Keep in mind that if you opt for matching contributions to go into your Roth account, the contributions will be taxed. The question about which 401 (k) plan is better depends so much on your individual situation. A Roth 401 (k) works well in many cases, but the traditional 401 (k) is really good in others.
Is a 401(k) better than a traditional 401 (k)?
Conversely, if you want to reduce your taxable income today and anticipate a lower tax bracket once you stop working, a Traditional 401 (k) may be better. Traditional contributions give you a tax deduction now, though withdrawals in retirement are taxed as ordinary income.
What are the benefits of a Roth 401(k)?
There’s another advantage of a Roth 401 (k). Starting this year, thanks to the SECURE 2.0 Act, you no longer must take required minimum distributions (RMDs) from Roth 401 (k)s during your lifetime. Savers in traditional 401 (k)s, however, are subject to RMDs.