Traditional 401(k) vs Roth 401(k)
Traditional 401(k) deducts contributions from this year's taxable income — you pay tax on withdrawals in retirement. Roth 401(k) is the opposite: contributions are post-tax, but withdrawals are tax-free. The right choice depends almost entirely on whether your retirement tax rate will be higher or lower than today's.
| Factor | Traditional 401(k) | Roth 401(k) |
|---|---|---|
| Tax treatment | Tax deduction now, tax on withdrawal | Tax now, tax-free withdrawal |
| Best for | High income now, lower in retirement | Lower income now, higher in retirement |
| 2026 contribution limit | $23,500 ($31,000 if 50+) | $23,500 ($31,000 if 50+) |
| Required min distributions (RMDs) | Yes, from age 73 | No (since SECURE 2.0) |
| Employer match treatment | Always pre-tax (even on Roth contributions) | Same |
| Effect on current taxable income | Reduces taxable income | No effect |
Choose Traditional 401(k) when…
You are in your peak earning years (24%+ federal bracket) and expect to retire in a lower tax bracket (12–22%). Also good if you live in a high-income-tax state now but plan to retire to a no-tax state like Florida or Texas.
Choose Roth 401(k) when…
You are early career (12% or 22% bracket), expect higher income or higher tax rates in retirement, want tax-free flexibility on withdrawals, or want to avoid RMDs. Younger workers especially benefit from decades of tax-free growth.
Run the numbers for your situation
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Open the calculator →Frequently asked questions
Can I contribute to both Roth and Traditional 401(k)?
Yes, if your plan offers both. The combined limit ($23,500 in 2026) applies to both. Splitting the contribution gives tax diversification — useful when you cannot predict future tax rates.
What about Roth IRA on top of a 401(k)?
Yes, you can contribute to both. Roth IRA has its own $7,000 limit ($8,000 if 50+) plus income phase-outs ($150–165K single, $230–240K MFJ in 2026). The 401(k) and IRA are separate buckets.
Should I convert Traditional to Roth?
Roth conversions make sense in low-income years (gap year, early retirement, sabbatical) when your marginal bracket temporarily drops. You pay tax on the converted amount now in exchange for tax-free growth forever. Run the numbers in our retirement calculator first.