Roth 401 K vs 401 K

A traditional 401(k) reduces your taxable income today. If you contribute $10,000 in 2026 and you're in the 24% federal bracket, you save $2,400 in taxes that year.

The IRS treats employer matching contributions the same regardless of your choice: matches always go into a traditional pre-tax account, even if you elect Roth for your own deferrals.

Both types require you to be employed by an employer sponsoring the plan and to meet any plan-specific eligibility rules, typically 21 years old and completion of a waiting period of up to one year.

Starting in 2024, Roth 401(k) accounts are no longer subject to required minimum distributions (RMDs) during the original account owner's lifetime, thanks to the SECURE 2.0 Act. Traditional 401(k) accounts still require RMDs beginning at age 73 (rising to 75 in 2033).

Choose Roth if you expect to be in a higher tax bracket in retirement than you are now. This typically applies to younger workers early in their careers, people experiencing temporarily low income (a career break, graduate school, a startup's early years), or anyone who believes tax rates will rise broadly.

Choose traditional if you're at peak earning years and expect lower income after retirement. A 55-year-old physician in the 37% bracket saves $3,700 per $10,000 contributed.

One advantage of the traditional option: if you retire between age 55 and 59½, the Rule of 55 lets you take penalty-free withdrawals from your current employer's 401(k). Roth 401(k) funds are also accessible under this rule, but because contributions have already been taxed, there's less tactical advantage.

The Roth five-year rule requires the account to be open at least five years before earnings can be withdrawn tax-free, even after 59½. Your first Roth 401(k) contribution starts this clock.

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

Yes, if your employer offers both options. Your combined contributions cannot exceed the annual limit ($23,000 in 2024, $30,500 if 50+).

Does my employer match go into the same account type I choose?

No. Employer matching contributions always go into a traditional pre-tax 401(k) account, even if you elect Roth for your own deferrals.

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

What happens if I withdraw Roth 401(k) funds before age 59½?

Contributions come out tax-free and penalty-free anytime. Earnings withdrawn before age 59½, or before the account has been open five years, are subject to ordinary income tax and a 10% early withdrawal penalty unless you qualify for an exception like disability, certain medical expenses, or the Rule of 55 if separating from your employer at 55 or older.