Traditional vs. Roth 401(k) contributions

Many 401(k) plans offer two ways to contribute: traditional (pre-tax) and Roth. Both go into the same plan, are invested in the same menu of funds and count toward the same annual limit. The difference is when income tax is paid. A traditional contribution postpones the tax until withdrawal. A Roth contribution pays it now in exchange for tax-free qualified withdrawals later.

The basic difference

The IRS Roth comparison chart summarizes the two side by side.

The IRS calls the Roth version a "designated Roth account."

A hypothetical paycheck comparison

Suppose someone earns $70,000 and contributes $7,000 for the year. For simplicity, assume a flat 20% income tax rate. This is an illustration, not a prediction of anyone's actual tax.

• Traditional: taxable wages drop to $63,000. Income tax for the year is about $1,400 lower than it would otherwise be. The $7,000 and whatever it earns will be taxed on withdrawal.
• Roth: taxable wages stay at $70,000. There is no tax reduction this year. The $7,000 and whatever it earns can come out tax-free in a qualified distribution.

If the tax rate at contribution and the tax rate at withdrawal were identical, the two approaches would produce the same after-tax result on the same pre-tax amount of pay. The outcomes differ when the rates differ. Traditional contributions tend to work out better when the tax rate at withdrawal is lower than today's; Roth contributions tend to work out better when it is higher. Nobody knows their future tax rate for certain, because it depends on future income and future tax law.

What makes a Roth withdrawal tax-free

Roth contributions can always be traced as already-taxed money, but the earnings come out tax-free only in a "qualified distribution." According to the IRS FAQs on designated Roth accounts, a qualified distribution is generally one made after a five-taxable-year period of participation and that is either:

• made on or after the date the participant reaches age 59½,
• made after the participant's death, or
• attributable to the participant being disabled.

The five-year period generally starts on the first day of the tax year in which the participant first made Roth contributions to that plan. Both conditions have to be met.

A withdrawal that is not qualified is treated as coming partly from contributions and partly from earnings, in proportion. The earnings portion is included in income. This pro-rata treatment differs from a Roth IRA, where IRS Publication 590-B explains that regular contributions are treated as coming out first.

Limits and eligibility

Traditional and Roth deferrals share one annual limit, which is $24,500 for 2026 according to the IRS contribution limits page. A participant can split contributions between the two in any proportion, and the IRS confirms that both can be made in the same year. Details are in 401(k) contribution limits and catch-up contributions.

Unlike a Roth IRA, a Roth 401(k) has no income limit. The IRS states plainly that there are no limits on income in determining whether someone can make designated Roth contributions. For people whose income is too high to contribute directly to a Roth IRA, the workplace plan may be their main route to Roth savings. The post on Roth vs. traditional IRAs covers the IRA rules.

One choice is not reversible: once a contribution is designated as Roth, the IRS says it cannot later be changed to pre-tax.

Employer contributions and catch-ups

Historically, employer matching contributions have gone into the pre-tax side of the account even when the employee's own contributions are Roth. A person making only Roth contributions may therefore still build up a pre-tax balance from the match. The SECURE 2.0 Act now lets plans offer employees the option of receiving employer contributions as Roth. Under IRS Notice 2024-2, a match designated as Roth is included in the employee's gross income for the year it is allocated to the account. Not all plans have added this option. See how an employer match works.

For some higher earners, part of the choice is made for them. The IRS catch-up contributions page explains that beginning in 2026, catch-up contributions must be made on a Roth basis by participants whose prior-year wages with the plan sponsor exceeded $150,000 (the threshold for 2026).

Required minimum distributions

Pre-tax 401(k) money is subject to required minimum distributions, which the IRS says generally begin at age 73. Roth money in a 401(k) is treated differently. The IRS RMD page states that withdrawals are not required from designated Roth accounts in a 401(k) or 403(b) plan while the account owner is alive. Beneficiaries who inherit the account are subject to distribution rules.

Factors people weigh

Because the answer depends on unknowns, there is no universal rule. Considerations that often come up:

• Current versus expected future tax rate. People early in a career or in a low-income year sometimes lean toward Roth; people in peak earning years sometimes lean toward traditional. These are tendencies, not rules.
• Take-home pay. A traditional contribution of a given size reduces the paycheck by less than the same Roth contribution.
• Other savings. Someone whose savings are almost entirely pre-tax may value having some tax-free money to draw on, and the reverse. The idea is covered in tax diversification.
• Splitting. Contributing some to each is allowed and is one way people handle uncertainty about future tax rates.

When Roth 401(k) money eventually leaves the plan, it follows its own rollover rules, described in what happens to Roth 401(k) money in a rollover.