If you’re not exactly sure what a Roth 401(k) is, you’re in the right place. In simple terms: A Roth 401(k)—and its similar sibling, Roth 403(b)—is a retirement savings account with tax benefits. The main difference between a Roth and a traditional 401(k) is how those benefits work: You contribute after-tax dollars to a Roth, but any account earnings will be tax-free as long as you meet certain conditions. (Traditional 401(k) accounts are the opposite: You contribute pretax dollars but owe income tax on withdrawals later on.)
A Roth 401(k) can be a great choice if you believe your tax bracket may be higher by the time you retire—or you simply don’t want to worry about taxes on your retirement account income when the time comes. Read on to find out how a Roth 401(k) works, see how it compares to other retirement accounts, and learn if it might be right for you.
What is a Roth 401(k)?
A Roth 401(k) is a type of workplace-sponsored retirement account in which you contribute after-tax dollars. That means your pay will be taxed, then contributions to your account will come from that taxed money. The benefit: Withdrawals are tax-free as long as you hold the account at least five years and meet other criteria.
This means a Roth 401(k) might make sense if you expect to earn significantly more by the time you retire.
For example, if you’re young and have a lower salary, but expect that your pay will rise significantly by the time you retire, a Roth 401(k) could be the right fit. That’s because paying taxes now at a lower rate may save you money by giving you tax-free income in retirement. Or, if you’re currently a high earner and expect to earn a similar amount in retirement, a Roth 401(k) could help ease some of your tax burden. You won’t have to worry about paying taxes on your Roth 401(k) income in a higher tax bracket.
How Roth 401(k)s work
Employers offer Roth 401(k)s as a benefit to their employees. After choosing the amount you want to contribute, it will be deducted from your taxed paycheck and deposited into the account. (Your investment options will depend on the plan your employer or organization offers.)
You can choose to contribute the same amount from year to year or change your contributions as time goes on. Some employers will match your contributions up to a certain amount.
Withdrawals or distributions from a Roth 401(k) are generally tax-free as long as they’re “qualified” in the eyes of the IRS: You’ll need to have had your Roth 401(k) for at least five years and be at least age 59½ when you make withdrawals. (Those rules don’t apply if you’re disabled or making qualified withdrawals from an account whose owner has died.)
Contribution limits
While there isn’t a minimum amount you need to contribute to a Roth 401(k), there are annual maximums you must adhere to. In 2025 you can contribute up to $23,500, not including any contributions your employer makes. (If you’re age 50-59 or will be by year-end, you can contribute an extra $7,500 and if you’re age 60-63, you can contribute an extra $11,250.) Contribution limits typically increase every other year with the cost of living, but sometimes they rise after one year. In 2024, for instance, the contribution limit was $23,000.
Withdrawal rules
The IRS stipulates guidelines for retirement minimum distributions (RMDs) for certain types of retirement plans. The RMD age for Roth 401(k) was 73 years old. That means once you reached 73, you were required to withdraw annually from your Roth 401(k), with some exceptions: If you were still working for the business that sponsors the Roth 401(k) or were at least a 5% owner of that business, you could have delayed taking RMDs until you retire.
In 2022 under the SECURE 2.0 Act, RMDs were eliminated for Roth accounts effective 2024.
Advantages and disadvantages
Since you won’t owe taxes on qualified Roth 401(k) earnings, you can save a significant amount of money. This is especially true if you move to a higher tax bracket after retirement. Since you’ve already paid taxes on contributions, the key advantage to a Roth 401(k) is that you won’t have to worry about paying taxes when you take your distributions.
However, a potential disadvantage is that because you contribute after-tax dollars, you’ll have less take-home pay than if you were to contribute the same percentage of salary before taxes. That also means less money working, and potentially growing, for you in your retirement account. Another downside is that to be sure you’ll benefit by paying taxes now instead of later, you’ll need to be able to predict your future earnings. In careers with reliable salary increases, this may be easy, but not all careers are so predictable.
Of course, tax-free income when you’re no longer working can be a benefit in itself.
Roth 401(k) vs. traditional 401(k)
Employers that sponsor retirement plans generally offer either a traditional 401(k) alone or both a traditional and a Roth option. With a traditional 401(k), you contribute pretax dollars. And because that money doesn’t count toward your taxable income, every dollar you contribute costs you less than a dollar in take-home pay. Both types of 401(k) accounts have the same contribution limits.
However, when you take distributions from a traditional 401(k), the amount you withdraw is subject to federal income taxes. And while both Roth and traditional 401(k)s triggered RMDs if you reached 73 in 2023, RMDs ended for Roth 401(k)s in 2024.
Can I contribute to both?
Yes, you can have a traditional and a Roth 401(k) as long as your employer offers both of them. In fact, because forecasting their future tax bracket can be so hard, many people choose to fund both types of accounts at the same time. It might be a smart investment strategy for retirement since you can balance both tax savings now and in the future. Keep in mind that the contribution limits are combined—in 2025 you can contribute up to $23,500 across both accounts (or an additional $7,500 in “catch-up” contributions if you’re at least age 50 or will be by Dec. 31 and if you are age 60-63, you can contribute a super catch-up contribution of $11,250).
Before opening a Roth 401(k), it’s best to check with your employer to determine if there are any limitations. For example, some workplaces won’t match Roth contributions or might route Roth-matching dollars into a traditional account.
Roth 401(k) vs. Roth IRA
Both Roth 401(k)s and Roth IRAs use after-tax contributions, and earnings aren’t taxed as long as the distributions are qualified. But that’s where their similarities end. A Roth 401(k) is an employer-sponsored plan and offers higher contribution limits. A Roth IRA, on the other hand, caps contributions far lower—up to $7,000 in 2025, plus another $1,000 if you’re 50 or older.
There are also income restrictions for a Roth IRA depending on factors like your filing status and income, unlike the Roth 401(k). To contribute to a Roth IRA, your modified adjusted gross income (MAGI) must be at or below a certain amount. For 2025:
- Married couples filing jointly: $246,000 (the amount you can contribute starts phasing out at $236,000)
- Single filers: $165,000 (phase-outs start at $150,000)
Can I contribute to both?
Yes, you can contribute to both a Roth IRA and a Roth 401(k) if your income is below IRS limits. You may be able to contribute up to $29,000–$39,000 if you’re 50 or older—across both accounts. This might be a smart retirement saving strategy because you can maximize the amount you can earn tax-free. (Keep in mind that you will need to adhere to contribution limits for each calendar year.)
Roth 401(k) vs. other retirement accounts
Here’s how common types of retirement accounts compare to Roths:
| Roth 401(k) | Traditional 401(k) | IRA (Roth and traditional) | Pension | Annuity |
|---|---|---|---|---|---|
Contributions | After-tax dollars | Pretax dollars | Traditional: Pretax dollars
| N/A (employer handles all contributions) | Pretax or after-tax dollars |
Taxes (on distributions) | No taxes on qualified withdrawals | Taxed at your regular income rate | Traditional: Taxed as regular income Roth: No taxes on qualified withdrawals | Typically taxed as regular income | Typically taxed as regular income |
Contribution limits | $23,000, plus $7,500 if age 50+ by Dec. 31 (2024).* If age 60-63, plus $11,250 | $23,500, plus $7,500 if age 50- by Dec. 31 (2025)* | $7,000 combined (2025), plus $1,000 if age 50+ by Dec. 31 | None, since employer usually manages and contributes to the plan | None |
RMDs | No | Yes, starting at age 73 | Traditional: Yes, starting at age 73 Roth: No, unless you’re not the original owner | No, but payments are based on plan rules and vesting schedule (can be a lump sum or over time) | No, but payments are based on contract terms (can be a lump sum or over time) |
Can employers match contributions? | Yes (but not required) | Yes (but not required) | No | N/A | No |
Footnote:
* Limits are combined for both types of 401(k)s and 403(b)s
Author Details
Sarah Li-Cain is an Accredited Financial Counselor® and a finance and business writer. Also a podcast producer for major finance brands, her work has appeared in publications such as Fortune, USA Today Blueprint, CNBC Select, the Seattle Times, and many others.
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