What is the difference between a Traditional and Roth 401(k)?

A Traditional 401(k) uses pre-tax contributions — you get a tax deduction now and pay taxes on withdrawals in retirement. A Roth 401(k) uses after-tax contributions — no tax break now, but qualified withdrawals in retirement are completely tax-free.

What are the 401(k) contribution limits for 2026?

For 2026, the IRS employee contribution limit is $23,500 for both Traditional and Roth 401(k) plans. Employees aged 50 and older can contribute an additional $7,500 catch-up contribution, for a total of $31,000. Employees aged 60-63 may contribute an additional $11,250 under the SECURE 2.0 super catch-up provision.

Can I contribute to both a Traditional and Roth 401(k) in the same year?

Yes. If your employer offers both options, you can split your contributions between Traditional and Roth 401(k) accounts in any proportion — as long as your total combined contributions do not exceed the annual IRS limit ($23,500 in 2026, plus catch-up if eligible).

Do Roth 401(k) accounts have income limits?

No. Unlike Roth IRAs, Roth 401(k) accounts have no income limits. Anyone with access to a Roth 401(k) through their employer can contribute regardless of their income level.

When should I choose a Roth 401(k) over a Traditional 401(k)?

A Roth 401(k) is generally better if you expect to be in a higher tax bracket in retirement than you are today, if you are early in your career with a lower current income, if you want tax-free income in retirement, or if you want to avoid required minimum distributions (Roth 401(k)s rolled into Roth IRAs have no RMDs).

Do Traditional 401(k) accounts require minimum distributions?

Yes. Traditional 401(k) accounts are subject to Required Minimum Distributions (RMDs) starting at age 73 under current IRS rules. Roth 401(k) accounts are also subject to RMDs unless rolled into a Roth IRA, which has no RMDs during the owner's lifetime.

Can I convert my Traditional 401(k) to a Roth 401(k)?

You may be able to convert Traditional 401(k) funds to a Roth 401(k) through an in-plan Roth conversion if your employer plan allows it. The converted amount is treated as ordinary income in the year of conversion. You can also roll Traditional 401(k) funds into a Roth IRA when you leave your employer, which triggers the same tax treatment.

What happens to my 401(k) when I leave my employer?

When you leave an employer you generally have four options: leave the funds in the former employer's plan (if allowed), roll them into your new employer's 401(k), roll them into an IRA (Traditional or Roth depending on account type), or cash out (not recommended — triggers ordinary income tax and a 10% early withdrawal penalty if under age 59½).

Traditional vs. Roth 401(k): Choosing the Right Plan

Retirement Planning Guide · 2026

Traditional vs. Roth 401(k)

Choosing the Right Plan for Your Financial Life

Your employer may offer both a Traditional and a Roth 401(k). Both are powerful retirement savings vehicles — but they're taxed differently, and choosing between them is one of the most consequential decisions in your financial life.

Overview

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

IRS Guidelines

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.

Comparison

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

Important Rules

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.

Decision Guide

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.

Portability

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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This material is provided for educational purposes only and does not constitute investment, tax, or legal advice. Contribution limits and tax rules are based on IRS guidance current as of 2026 and are subject to change. Consult your tax advisor or financial professional regarding your specific situation.

Securities and investment advisory services offered through Osaic Wealth, Inc., member FINRA / SIPC. Northern Pacific Asset Management and Osaic Wealth are separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth.