Roth 401(k) Plans

Roth 401(k) Plans

Tax-Free Retirement Income May Be One of Your Best Investments

A Roth 401(k) combines many of the benefits of a traditional 401(k) with one significant difference—your contributions are made with after-tax dollars.

While you do not receive a current income tax deduction for your contributions, qualified withdrawals in retirement—including investment earnings—are generally completely tax-free, provided IRS requirements are met.

Unlike a Roth IRA, a Roth 401(k):

• Has much higher annual contribution limits.

• Is not subject to income limits that prevent higher-income individuals from contributing.

• Allows participants to build a source of tax-free retirement income.

• Can often be offered alongside a traditional 401(k), allowing employees to choose one or both contribution types.

For 2026, employees may contribute up to $24,500 to a 401(k) plan (traditional, Roth, or a combination of both), with an additional $8,000 catch-up contribution available for those age 50 and older. Individuals ages 60 through 63 may qualify for an even larger catch-up contribution under current IRS rules.

Traditional 401(k) vs. Roth 401(k)

The primary difference between the two plans is when you pay income taxes.

Traditional 401(k)

• Contributions are generally made on a pre-tax basis.

• Contributions may reduce your current taxable income.

• Investments grow tax-deferred.

• Withdrawals in retirement are generally taxed as ordinary income.

Roth 401(k)

• Contributions are made with after-tax dollars.

• No current-year tax deduction.

• Investments grow tax-free.

• Qualified withdrawals are generally completely tax-free.

Which Is Better?

The answer depends on your individual circumstances.

A Traditional 401(k) may be attractive if you expect to be in a lower tax bracket during retirement and want to maximize your current tax deduction.

A Roth 401(k) may be the better choice if you believe your tax rate will be the same or higher in retirement, if you expect tax rates to rise over time, or if building a source of tax-free retirement income is an important part of your long-term financial strategy.

Many investors choose to contribute to both Traditional and Roth 401(k) accounts when their employer’s plan permits. This approach creates greater tax flexibility in retirement by providing both taxable and tax-free sources of income.

Choosing the Right Strategy

Selecting between a Traditional and Roth 401(k) involves more than simply comparing today’s tax deduction with tomorrow’s tax-free income. Your current tax bracket, future income expectations, retirement goals, estate planning objectives, and overall financial plan should all be considered before making a decision.

Our team can help you evaluate which approach—or combination of approaches—best aligns with your long-term retirement and tax planning goals.

Important Disclosure: This material is provided for educational purposes only and should not be considered tax, legal, or investment advice. Tax laws and contribution limits change periodically, and individual circumstances vary. Please consult your tax advisor and financial professional before making retirement planning decisions.