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Roth 401(k)

The Roth option inside a 401(k): you contribute after tax, and qualified withdrawals, earnings included, come out tax-free.

What It Means

A Roth 401(k)401(k)A retirement plan run through an employer that lets you put part of each paycheck into investments, before tax or as Roth, up to a yearly IRS limit. See more, which the IRS calls a designated Roth account, is a Roth option within a workplace 401(k). Your contributions come out of your paycheck after income tax, so they don't lower this year's taxable pay. In exchange, a qualified withdrawal (after a five-year period and once you reach 59½, become disabled or die) comes out with no income tax on the contributions or the growth. It shares one yearly limit with traditional 401(k) contributions.

Try It: Compare Roth and Traditional on $1,000 of Pay

Follow $1,000 of pay into each side. Growth would multiply both results by the same amount, so it's left out. The tax rates are examples.

Traditional: all $1,000 goes in, taxed on the way out$880left to spend
Roth: taxed first, the rest goes in and comes out tax-free$780left to spend

Traditional comes out ahead here, because the tax rate later is lower than the rate now.

How People Say It

  • "I switched my contributions to Roth this year."
  • "My plan lets me split between Roth and traditional."
  • "Roth now, tax-free later."

The Breakdown

Worked example. Dana is in the 22% bracket now and expects 12% in retirement. The tool above follows $1,000 of her pay each way.

Traditional 401(k)Roth 401(k)
Tax on the way in$0$220
Amount invested$1,000$780
Tax on the way out, at 12%$120$0
Left to spend$880$780

What the result means. The choice comes down to whether your tax rate is higher now or later, since growth multiplies both sides the same way. When the rate later is higher, Roth wins; when it's equal, they tie. Nobody knows their future rate for certain, and some people split contributions between the two as a hedge.

The limit is shared. For 2026 the IRS allows $24,500 of your own contributions in total, whether they go in as Roth, traditional or a mix of both.

Good to Know

To be qualified, a withdrawal must come after a five-taxable-year period that starts with the first year you made Roth contributions to that plan, and after you reach 59½, become disabled or die, according to the IRS. Designated Roth accounts need no required withdrawals during the owner's lifetime under current IRS rules. From 2026, a worker whose prior-year wages from the employer topped $150,000 must make any catch-up contributions as Roth, under the SECURE 2.0 rule and the Treasury and IRS final regulations. A tax professional can help you weigh Roth against traditional for your situation.

FAQ

What is the Roth 401(k) limit for 2026?

$24,500, the same limit as a traditional 401(k), and it covers both combined. Catch-up amounts for ages 50 and up are added on top if the plan offers them.

Is a Roth 401(k) better than a traditional 401(k)?

It depends mostly on your tax rate now compared with later. If you expect a higher rate in retirement, Roth tends to come out ahead; if lower, traditional does.

What is the five-year rule for a Roth 401(k)?

Earnings come out tax-free only after five taxable years counted from the first year you made Roth contributions to that plan, and once you're 59½, disabled or deceased. The IRS explains the count on its designated Roth account pages.

Do It in Buhata

Accounts

Add your Roth 401(k) as its own account in Accounts, separate from any traditional balance, so you can see how much of your savings will come out tax-free.

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Related Terms and Categories

  • 401(k)

    A retirement plan run through an employer that lets you put part of each paycheck into investments, before tax or as Roth, up to a yearly IRS limit.

  • Roth IRA

    An individual retirement account funded with after-tax money, where qualified withdrawals, earnings included, come out tax-free.

  • Traditional IRA

    An individual retirement account where contributions may be tax-deductible, growth is tax-deferred, and withdrawals are taxed as income.

  • Contribution limit

    The most the IRS lets you put into a tax-advantaged account in a year, such as a 401(k), IRA or HSA, often with a higher catch-up amount at older ages.

  • Tax-advantaged account

    An account the tax code rewards, such as a 401(k), IRA, HSA or 529 plan, where taxes are cut, delayed or skipped if you follow its rules.

Saving and investing basics

Sources

Internal Revenue Service, "Retirement topics: Designated Roth account"; IRS, "Retirement plans FAQs on designated Roth accounts"; IRS, "Retirement plan and IRA required minimum distributions FAQs"; IRS, "Ten differences between a Roth IRA and a designated Roth account"; IRS, "401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500"; IRS, "Treasury, IRS issue final regulations on new Roth catch-up rule, other SECURE 2.0 Act provisions"; IRS, "Retirement topics: Catch-up contributions"

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