What's the Difference?
Traditional 401(k)
- Contributions are pre-tax — reduces your taxable income today
- Money grows tax-deferred inside the account
- Withdrawals in retirement taxed as ordinary income
- Best when you expect a lower tax rate in retirement
Roth 401(k)
- Contributions are after-tax — no immediate tax break
- Money grows tax-deferred inside the account
- Qualified withdrawals in retirement are federal tax-free
- Best when you expect a higher tax rate in retirement
2026 Contribution Limits
| Contributor | Annual Limit | Notes |
|---|---|---|
| Employee (under age 50) | $24,500 | Combined limit across all 401(k) plan types |
| Catch-up (age 50–59) | +$8,000 = $32,500 | Standard catch-up contribution |
| Enhanced catch-up (age 60–63) | +$11,250 = $35,750 | New higher limit under SECURE 2.0 Act |
| Catch-up (age 64+) | +$8,000 = $32,500 | Returns to standard catch-up amount at age 64 |
| Employer match | Pre-tax or Roth (employer choice) | SECURE 2.0 allows employers to offer Roth matching, but most continue to match pre-tax. Roth match grows tax-free; pre-tax match is taxable upon withdrawal. |
Key Differences at a Glance
| Feature | Traditional 401(k) | Roth 401(k) |
|---|---|---|
| Contributions | Pre-tax | After-tax |
| Current tax impact | Reduces taxable income now | No current tax benefit |
| Withdrawals after 59½ | Taxed as ordinary income | Federal tax-free (if qualified) |
| Required Minimum Distributions | Begins at age 73 | Age 73 — or avoid via Roth IRA rollover |
| Best for | Expect lower tax rate in retirement | Expect higher tax rate in retirement |
What Makes a Roth 401(k) Withdrawal "Qualified"?
Five-Year Rule
The account must have been open for at least five years. The five-year period begins January 1 of the year you first contribute — regardless of when during that year the contribution was made.
Age or Qualifying Event
You must be at least age 59½, disabled, or deceased. If both conditions are met, your withdrawal is federally income tax-free. If not, only the earnings — not your contributions — are subject to income tax.
RMDs — Updated Under SECURE 2.0
RMDs from both Traditional and Roth 401(k)s now begin at age 73. However, rolling your Roth 401(k) into a Roth IRA before RMDs begin eliminates the RMD requirement during your lifetime — a significant estate planning advantage. Talk to your advisor about whether a Roth IRA rollover makes sense for your strategy.
Which Is Right for You?
Traditional May Be Better If:
- You need to reduce your tax bill today
- You expect a lower tax bracket in retirement
- You want to maximize pre-tax deferrals now
- Your employer doesn't match Roth contributions
Roth May Be Better If:
- You expect a higher tax rate in retirement
- You can afford the full after-tax contribution
- You want federal tax-free income in retirement
- You're focused on estate planning or avoiding RMDs
When in Doubt — Diversify Your Tax Exposure
Holding both Traditional and Roth accounts gives you flexibility to manage taxable income in retirement — drawing from pre-tax or after-tax sources depending on your situation each year. This optionality is often more valuable than optimizing for a single tax scenario today.
Rollover Options
Rolling FROM a Traditional 401(k)
- To a Traditional IRA — tax-free rollover
- To a Roth IRA — taxable conversion (pre-tax dollars included in income)
- To another Traditional 401(k) — if new employer accepts
- To a Roth 401(k) — intra-plan conversion, pre-tax dollars taxed
Rolling FROM a Roth 401(k)
- To a Roth IRA — tax-free; five-year clock restarts at IRA
- To another Roth 401(k) — trustee-to-trustee; five-year period carries over
- Cannot roll to a Traditional IRA or Traditional 401(k)
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