Should You Use a Roth 401(k) or Traditional? – Avoid This Mistake + FAQs

The best choice between a Roth 401(k) and a Traditional 401(k) depends on whether your tax rate will be higher or lower in the future.

If you expect to be in a higher tax bracket in retirement, a Roth 401(k) is generally more advantageous, since you pay taxes now on contributions but qualified withdrawals after age 59½ are tax-free.

Conversely, if you want to reduce your taxable income today and anticipate a lower tax bracket once you stop working, a Traditional 401(k) may be better. Traditional contributions give you a tax deduction now, though withdrawals in retirement are taxed as ordinary income.

In simple terms: Use a Roth 401(k) if your tax rate is low now or will rise in retirement, and use a Traditional 401(k) if your tax rate is high now or will fall later. Younger or lower-income workers often benefit more from Roth contributions, locking in tax-free growth at today’s low rates.

In contrast, higher earners typically get more value from Traditional contributions by grabbing a hefty tax break when their tax rate is at its peak. For flexibility, you can also split contributions between Roth and Traditional to diversify your tax exposure and hedge against future tax changes.

Federal Tax Law: How Roth vs Traditional 401(k) Differ

Contributions and Tax Deductions: When you contribute to a Traditional 401(k), those contributions are made pre-tax, which means they are deducted from your taxable income for that year.

This lowers your adjusted gross income (AGI) and can reduce your federal income tax bill today. In contrast, contributions to a Roth 401(k) are made with after-tax dollars; there is no upfront tax deduction. Your AGI remains higher in the contribution year with a Roth 401(k) contribution, as you have already paid tax on that money.

Tax-Free Growth: Both Roth and Traditional 401(k) accounts allow your investments to grow tax-deferred while the money stays in the account.

This means you won’t owe any taxes each year on interest, dividends, or capital gains inside the 401(k). The difference comes at withdrawal: a Roth 401(k) provides tax-free growth (you pay no tax on investment earnings when you withdraw in retirement), whereas a Traditional 401(k) provides tax-deferred growth (you’ll pay regular income tax on the earnings when you withdraw them).

Over decades of compounding, the benefit of never paying tax on Roth earnings can be enormous, especially if you are in a higher tax bracket when retired.

Withdrawals in Retirement: Federal law taxes Traditional 401(k) withdrawals as ordinary income.

Every dollar you take out of a Traditional 401(k) during retirement gets added to your taxable income for that year, and you pay whatever your tax rate is at that time.

With a Roth 401(k), qualified withdrawals are completely tax-free at the federal level. To be qualified, you generally must reach age 59½ and have held the Roth account for at least five years; meeting these conditions allows you to withdraw both contributions and earnings tax-free at the federal level.

Required Minimum Distributions (RMDs): Traditional 401(k) accounts are subject to required minimum distribution rules. Under current federal law, you must start taking withdrawals from a Traditional 401(k) by age 73 (recently increased from 72, and will eventually rise to 75 under new legislation). These mandatory withdrawals are taxed as income.

Roth 401(k) accounts, however, no longer have RMDs during the original owner’s lifetime as of 2024. Previously, Roth 401(k)s did require RMDs at the same age, but recent changes in law eliminated that requirement, aligning Roth 401(k)s with Roth IRAs.

This means you can leave Roth 401(k) money untouched for as long as you live, allowing continued tax-free growth, whereas Traditional 401(k) funds eventually must be withdrawn and taxed.

Early Withdrawals and Penalties: If you withdraw from a 401(k) before age 59½, the IRS generally imposes a 10% early withdrawal penalty on top of any regular taxes due.

For a Traditional 401(k), an early withdrawal means you’ll owe income tax plus that 10% penalty on the amount (unless you qualify for an exception such as the age-55 rule or a hardship provision).

With a Roth 401(k), early withdrawals work a bit differently. You can withdraw your own contributions at any time tax-free and penalty-free (since you’ve already paid tax on that money), but withdrawing earnings before age 59½ (and before five years of participation) would incur income tax and the 10% penalty on those earnings.

Neither type of 401(k) is meant for early access, although the Roth allows slightly more flexibility because your contributions can be taken out without tax or penalty.

Contribution Limits: The IRS sets a combined annual contribution limit for your Traditional and Roth 401(k) contributions. In 2023, for example, this limit is $22,500 (or $30,000 if you are age 50+ and eligible for a $7,500 catch-up).

You can split this contribution between Roth and Traditional in any proportion, but the total cannot exceed the annual maximum (e.g., putting $10,000 into Roth would leave $12,500 available for Traditional contributions that year).

Also note that starting in 2025, new legislation will require high earners to make any catch-up contributions as Roth only—if your wages exceed a certain threshold (around $145,000 in the prior year), any age 50+ catch-up must go into a Roth 401(k).

Employer Matches and Tax Treatment: If your employer offers a matching contribution on your 401(k) deferrals, those match dollars are always treated as pre-tax (Traditional) contributions under federal law.

Even if you put your own contributions into a Roth 401(k), the employer’s match will go into a separate Traditional 401(k) portion of your account.

This means that although you may accumulate Roth money, you will also have a Traditional portion from matches, which will be taxable upon withdrawal. It’s important to account for this—choosing Roth for your contributions does not make 100% of your 401(k) tax-free, because the match portion remains tax-deferred.

Impact on Other Tax Benefits: Traditional 401(k) contributions lower your AGI, which can help you qualify for or increase certain tax benefits in the year you contribute. For instance, a lower AGI might help a middle-income taxpayer qualify for the Retirement Saver’s Credit or avoid phase-outs of credits and deductions tied to income.

By contrast, Roth 401(k) contributions won’t reduce your current AGI (since there’s no immediate deduction), but in retirement they can provide an advantage: Roth withdrawals do not count as taxable income.

Keeping taxable income lower in retirement can mean more of your Social Security benefits remain untaxed and you avoid triggering higher Medicare Part B premiums or other income-based costs. In short, Roth means paying tax now for potentially more tax-free income later, whereas Traditional means a tax break now with more taxable income in retirement.

State Tax Nuances: How Where You Live Affects Your 401(k)

State income taxes can change the Roth vs Traditional 401(k) calculus. At the state level, the rules often mirror federal treatment, but there are important exceptions.

Most states that have an income tax allow the same tax deduction for Traditional 401(k) contributions and tax Roth 401(k) contributions the same as any other income (no deduction upfront). Similarly, in many states, Traditional 401(k) withdrawals in retirement are treated as taxable income, while qualified Roth 401(k) withdrawals are tax-free.

High-Tax vs Low-Tax States: If you live in a high-income-tax state now and plan to retire in a state with low or no income tax, a Traditional 401(k) offers a double tax break. You’d avoid the high state tax on your contributions now (because of the deduction) and then pay little to no state tax on withdrawals later if you’re no longer in the high-tax state.

For example, someone working in California (with high state tax rates) who expects to retire in Florida (which has no state income tax) could benefit from Traditional 401(k) contributions—saving California tax now and paying no state tax on distributions in Florida.

Conversely, if you currently live in a state with no income tax but plan to retire in a high-tax state, Roth contributions can be wiser, since you pay no state tax on contributions now and will avoid state tax on qualified withdrawals in that future high-tax state.

States with Unique Rules: Some states have unique tax rules for retirement accounts. For instance, Pennsylvania and New Jersey do not provide a tax break on 401(k) contributions—they tax your contributions in the year earned, as if it were ordinary income (much like a Roth contribution from the state’s perspective).

However, these states generally do not tax 401(k) withdrawals in retirement; in Pennsylvania, for example, qualified distributions from retirement plans are completely tax-exempt for retirees.

This means that if you live and retire in Pennsylvania, a Traditional 401(k) ends up being taxed just once (at contribution) similarly to a Roth: you pay Pennsylvania’s 3.07% tax upfront and nothing on withdrawal. Thus, the state-tax outcome is essentially the same for Roth and Traditional in such cases, so this factor might not tilt your decision either way.

Partial Exemptions for Retirement Income: Many states offer partial or full exemptions for retirement income. For example, Illinois and Mississippi do not tax 401(k) or IRA withdrawals at all, effectively giving retirees a state tax holiday on those distributions.

Other states do tax retirement income but might exclude a certain dollar amount or offer breaks once you reach a certain age. If your state exempts most retirement income, Traditional 401(k) withdrawals won’t incur state tax (you’d only owe federal tax).

On the other hand, if your state fully taxes retirement income, Roth’s tax-free withdrawals become even more valuable since they avoid state tax as well.

Planning for Relocation: When choosing between Roth and Traditional 401(k), consider not only your current state’s tax climate but also the tax environment of any state you might live in down the road. Moving a large Traditional 401(k) balance from a no-tax state to a high-tax state in retirement can lead to unexpected tax bites if it’s all in a Traditional 401(k).

By contrast, accumulating Roth 401(k) savings while in a low-tax environment can shield you from future state taxes if you later reside in a higher-tax state. Think about where you will likely spend your high-earnings years versus where you’ll spend your retirement years, and factor in those states’ tax rates and policies.

Mistakes to Avoid When Deciding on Roth vs Traditional 401(k)

• Basing your choice only on your current situation: Don’t assume your current tax bracket or income will stay the same forever. Ignoring how your future income and tax rates might change can lead to a suboptimal choice.

• Neglecting the impact of RMDs and later-life taxes: Failing to consider that Traditional 401(k)s force taxable withdrawals in your 70s (which can also raise taxes on Social Security and Medicare premiums) is a common oversight. Likewise, not realizing Roth 401(k)s now have no RMDs could mean missing out on a chance to minimize taxes in old age.

• Not investing the tax savings: If you choose a Traditional 401(k) for the tax break but then just spend the extra take-home pay instead of investing it, you lose the long-term advantage. Avoid the mistake of not putting those tax savings to work for your future.

• Forgetting about state taxes: Many people focus only on federal taxes and forget that state taxes may differ. A decision that looks good federally could backfire if you move to a different tax state or if your state treats 401(k) income uniquely.

• Assuming Roth and Traditional are all-or-nothing: Some think they must pick exclusively one or the other. In reality, you can split contributions and diversify your tax exposure; a mistake is to ignore this flexibility if it suits your situation.

• Misunderstanding withdrawal rules: A common error is assuming Roth 401(k) contributions can be tapped early just like a Roth IRA, but in a 401(k) you generally cannot withdraw your contributions freely and the 5-year rule still applies for tax-free earnings. Not knowing these rules can lead to unintended taxes or penalties if you attempt early withdrawals.

• Delaying savings by overthinking: The worst mistake is not contributing at all while you debate Roth vs Traditional. It’s better to contribute something (either type) than to lose out on employer matches or compound growth because you couldn’t decide.

Key Terms and Definitions

• 401(k) Plan: A workplace retirement savings plan that lets employees contribute a portion of their salary into investment accounts, often with an employer match. It is named after section 401(k) of the Internal Revenue Code.

• Traditional 401(k): The standard 401(k) contribution type made with pre-tax dollars. Contributions reduce your taxable income today, and withdrawals in retirement are taxed as ordinary income.

• Roth 401(k): A 401(k) contribution option made with after-tax dollars (no upfront tax deduction). Qualified withdrawals in retirement (after age 59½ and the account being at least 5 years old) are completely tax-free.

• Pre-tax Contribution: Money contributed to a retirement plan before income taxes are taken out, providing a tax deduction now. Traditional 401(k) contributions are pre-tax contributions.

• After-tax Contribution: Money contributed to a retirement plan after income taxes have been paid. Roth 401(k) contributions are after-tax, meaning you pay tax now in exchange for potentially tax-free withdrawals later.

• Tax-Deferred: A status of investment earnings meaning taxes are postponed until a future date. Traditional 401(k) earnings are tax-deferred until you withdraw them, instead of being taxed in the year they accrue.

• Tax-Free: Not subject to taxation. Roth 401(k) earnings and withdrawals are tax-free if you meet the requirements for a qualified distribution.

• Tax Bracket (Marginal Tax Rate): The rate at which your next dollar of income will be taxed. The U.S. tax system is progressive; earning more can push parts of your income into higher tax brackets.

• Adjusted Gross Income (AGI): Your gross income minus certain deductions (like Traditional 401(k) contributions). AGI is used to determine eligibility for many tax credits and phaseouts and is a key number on your tax return.

• Required Minimum Distribution (RMD): The minimum amount you must withdraw from a retirement account each year once you reach a certain age (73 under current law for 401(k)s). Traditional 401(k)s have RMDs; Roth 401(k)s do not (as of recent law changes for the original owner).

• Saver’s Credit: A federal tax credit (formally the Retirement Savings Contributions Credit) available to low- and moderate-income taxpayers who contribute to retirement accounts. Traditional 401(k) contributions can help you qualify by lowering your AGI.

• Catch-Up Contribution: An extra amount individuals aged 50 or older can contribute to retirement accounts above the regular annual limit. In a 401(k), the catch-up (e.g., an additional $7,500) can be designated as Traditional or Roth, but high earners will soon be required to make catch-ups as Roth only.

• Qualified Distribution: A withdrawal that meets certain IRS criteria to be tax-free and penalty-free. For a Roth 401(k), a qualified distribution means the account holder is over 59½ (or disabled/deceased) and the Roth account has been open for at least 5 years.

• Five-Year Rule (Roth): The rule stating that Roth account earnings become tax-free only if at least five years have passed since the first contribution to that Roth account. Each employer’s Roth 401(k) has its own 5-year clock (which can transfer if you roll it into a Roth IRA).

• Employer Match: The contribution your employer adds to your 401(k) when you contribute, usually up to a certain percentage of your salary. Employer matches are always put into the Traditional portion of your 401(k) and are subject to taxes upon withdrawal.

• Tax Diversification: Holding both tax-deferred and tax-free accounts to spread out tax risk. By splitting contributions between Traditional and Roth, you create flexibility to manage taxable income in retirement under whatever tax laws exist in the future.

Examples: Roth vs Traditional 401(k) in Different Scenarios

25-Year-Old in a Low Tax Bracket (Roth Advantages)

Emily is 25 and in a low federal tax bracket (around 12%). She expects her income to grow over her career and thinks she’ll be in a much higher tax bracket by the time she retires. Her current tax rate is low, so every dollar she contributes to a Roth 401(k) is taxed minimally now and then can grow entirely tax-free for decades. By contrast, a Traditional 401(k) contribution would save her only 12% in taxes now, but those savings would be small compared to potentially paying 25% or more on the withdrawals in retirement if her tax bracket rises.

For a concrete comparison: suppose $1 in Emily’s 401(k) grows about 15-fold by the time she retires (roughly to $15 after many years of growth). With a Traditional 401(k), that $15 would be taxed at, say, 25%, leaving her with about $11.25 after taxes.

With a Roth 401(k), Emily would have paid roughly $0.12 in tax on that $1 upfront (12%), leaving $0.88 to invest; after the same growth, she ends up with about $13.20, and she owes no tax on it. The Roth route gives her more spendable money because her tax rate when withdrawing is higher than when contributing.

In summary, the Roth 401(k) provides Emily the better outcome. She gives up a small tax break now in exchange for tax-free withdrawals later when her tax rates will likely be higher.

45-Year-Old High Earner (Traditional Advantages)

Daniel is 45 and in a high income tax bracket (for example, 32% federal). He expects that when he retires at 65, his income from Social Security and 401(k) withdrawals will put him in a lower bracket, perhaps around 22%.

For Daniel, using a Traditional 401(k) makes a lot of sense — he gets a large 32% tax deduction on contributions now, providing significant immediate savings. By retirement, his account will have grown, and he will be withdrawing money at a comparatively lower tax rate.

Let’s put it in numbers. Imagine Daniel contributes $1 and it grows to about $4 by the time he retires (growth over 20 years).

With a Traditional 401(k), that $1 contribution saved him $0.32 in taxes upfront. When the $4 balance is withdrawn in retirement at a 22% tax rate, about $0.88 is taken in tax (22% of $4), leaving him $3.12. If instead he had put $1 into a Roth 401(k), he’d pay $0.32 in tax upfront, invest $0.68, which might grow to about $2.72; since Roth withdrawals are tax-free, he keeps $2.72. Comparing the two, $3.12 (Traditional route) versus $2.72 (Roth route) from the same $1 contribution illustrates how Daniel comes out ahead by using the Traditional 401(k) given the tax rate drop.

Additionally, Daniel’s high current income means any reduction in AGI is valuable. Traditional contributions could also reduce his state income tax and help with things like phaseouts or Medicare taxes. In short, deferring tax to retirement is advantageous for him because he’ll likely face lower rates later.

60-Year-Old Near Retirement (Balancing Current Tax and Future RMDs)

Catherine is 60, in a high tax bracket right now, and she has a large Traditional 401(k) balance from decades of saving. She’s deciding whether to shift new contributions to the Roth 401(k) as she approaches retirement. At her stage, the Roth benefit is less about long-term growth (since she might only invest for a few more years) and more about flexibility during retirement.

Notably, Roth 401(k) money won’t be subject to required minimum distributions at age 73, whereas any Traditional 401(k) money will force her to take taxable withdrawals.

If Catherine contributes to the Roth 401(k) for her remaining working years, she’ll pay taxes at her current high rate on those contributions.

However, once retired, those Roth funds can stay in the account as long as she wants, and any withdrawals will be tax-free. This could help her manage her taxable income in her 70s, especially if she doesn’t need all her RMD money; the Roth gives her the option to keep money invested without forced taxable withdrawals.

On the other hand, Catherine’s current tax rate is perhaps 35%, and if she expects it to drop to maybe 24% when she stops working, continuing with Traditional contributions still has appeal. She’d get a hefty 35% tax break on contributions now and later withdraw at 24%, capturing that tax rate differential.

Her solution might be to split contributions between Roth and Traditional. By doing so, she still reduces some taxable income now but also grows a pool of Roth money she can use freely in retirement. This balanced approach ensures she doesn’t put all her eggs in one basket tax-wise.

Catherine’s example highlights the trade-off near retirement: If your current tax is extremely high but will fall later, Traditional is hard to pass up, yet having some Roth money gives future flexibility (no RMDs and tax-free income). Many near-retirees do a mix for this reason.

35-Year-Old Planning Early Retirement (Traditional Now, Roth Later)

Ethan is 35, in a high tax bracket today, and plans to retire at 50 (well before typical retirement age). Right now, he maxes out his Traditional 401(k) to grab the big tax deduction while he’s earning a high salary. The twist is what happens after 50: once Ethan retires early, he’ll have a long stretch of years with little to no work income.

During those years, he can convert portions of his Traditional 401(k)/IRA to a Roth IRA gradually. Each year, he might convert just enough so that the converted amount is taxed at a low rate (since he’s effectively in a much lower bracket in retirement than he was while working).

This strategy is popular in the financial independence/early retirement community. Ethan effectively uses Traditional contributions to defer tax when his rate is high, then switches that money to Roth during early retirement when his tax rate is low.

By age 60 or 65, he could end up with a large Roth balance (from those conversions) that will generate tax-free income, and he will have paid much less tax on those savings than if he had contributed to Roth during his high-earning years. In essence, he gets the best of both worlds: a tax break up front and tax-free withdrawals later.

Same Tax Rate Now and Later (Neutral Outcome)

Fiona is in the 24% tax bracket now and reasonably expects to be in roughly the 24% bracket in retirement. In this situation, the Roth vs Traditional decision becomes a toss-up financially because the tax rate on contributions and withdrawals is the same.

If Fiona contributes to a Traditional 401(k), she avoids 24% tax on those dollars today. If instead she uses the Roth 401(k), she pays that 24% tax now.

Imagine she can afford to put $15,000 per year into retirement. With a Traditional 401(k), the whole $15,000 goes in pre-tax. With a Roth 401(k), she’d pay about $3,600 in tax and end up with about $11,400 going into the account. Say both accounts triple by the time she retires.

The Traditional 401(k) grows to about $45,000, but upon withdrawal at 24% tax, she nets roughly $34,200. The Roth 401(k) grows the $11,400 to about $34,200, and because that money is tax-free, she also ends up with $34,200. It’s essentially the same.

Since the outcome is financially equal, Fiona might lean Roth for non-math reasons: for instance, she likes the idea of tax-free income and no RMDs in retirement, or she worries tax rates could rise and wants the certainty of Roth.

Alternatively, she might stick with Traditional to get the current-year tax break and invest those tax savings elsewhere. When current and future tax rates are the same, your personal preferences and risk outlook on taxes can guide the choice more than raw dollars.

Pros and Cons: Roth 401(k) vs Traditional 401(k)

Legal, Historical, and Key Player Context

Origins of 401(k) and Roth 401(k)

The 401(k) plan came into existence as a provision in the Revenue Act of 1978, but it was in 1981 that it really took off, thanks in part to benefits consultant Ted Benna who first utilized the new tax code provision to create an employee savings plan. Before 401(k)s, many workers relied on pensions; the 401(k) shifted retirement saving responsibility toward individuals, with the benefit of tax deferral. The Roth concept came later: Senator William Roth championed the idea of after-tax retirement contributions leading to tax-free withdrawals. Roth IRAs began in 1998, and the Roth 401(k) became available in 2006 after a change in law (part of the 2001 tax legislation, EGTRRA). Since 2006, employers gradually adopted Roth 401(k) options, and now most large company plans offer both Roth and Traditional 401(k) choices.

Recent Laws and Changes

Retirement accounts have periodically been adjusted by new laws. The SECURE Act of 2019 and SECURE 2.0 Act of 2022 made significant updates. For example, SECURE 2.0 eliminated RMDs for Roth 401(k)s starting in 2024 (aligning them with Roth IRAs) and raised the RMD starting age for Traditional accounts (to 73, and eventually 75).

Legislators also added rules like requiring high earners’ catch-up contributions to be Roth and expanded contribution limits over time to encourage more saving.

These changes underscore that Congress can tweak the rules, which is one reason many people hedge between Roth and Traditional (to be prepared for various tax law outcomes).

Protections and Court Rulings

401(k) plans are governed by the Employee Retirement Income Security Act (ERISA), which provides strong protections to participants. For instance, money in a 401(k) — whether Roth or Traditional — is generally shielded from creditors in bankruptcy. In a 2014 Supreme Court case (Clark v. Rameker), the Court clarified that inherited IRAs don’t have the same bankruptcy protection as employer plans, highlighting the value of 401(k)’s ERISA protection. Another Supreme Court case in 2015 (Tibble v. Edison International) affirmed that 401(k) plan administrators must monitor investment options and keep fees reasonable for participants. These cases, though not about Roth vs Traditional specifically, strengthened protections for all 401(k) savers.

Key Players in Retirement Planning

The IRS and Congress define the 401(k) rules — Congress writes tax laws and the IRS sets contribution limits, tax regulations, and enforcement. The Department of Labor ensures plans follow ERISA rules, which include fiduciary duties to act in participants’ best interest. Employers and plan administrators (often financial firms like Fidelity or Vanguard) implement and manage 401(k) plans, offering investment options and handling contributions. Financial advisors and planners can help individuals decide whether Roth or Traditional contributions make sense for their situation. Organizations like AARP and other consumer advocates educate savers and lobby for policies to strengthen retirement security.

These players interact under a collaborative framework: Congress and regulators set the stage, employers and financial institutions carry out the day-to-day operations under those rules, and individuals make choices within that structure. The system is designed to encourage saving through incentives (like tax deductions or tax-free growth) while protecting savers with regulations. The Roth vs Traditional 401(k) option itself was created by policymakers to give workers flexibility to optimize their tax strategy for retirement.

Frequently Asked Questions (FAQs)

Q: Can I contribute to both a Roth and Traditional 401(k) in the same year?
A: Yes. You can split contributions between Roth and Traditional as long as the total does not exceed the annual IRS contribution limit for your 401(k).

Q: Does contributing to a Roth 401(k) lower my taxable income this year?
A: No. Roth 401(k) contributions are made with after-tax dollars, so they do not reduce your current year’s taxable income (unlike Traditional 401(k) contributions which are pre-tax).

Q: Are withdrawals from a Roth 401(k) really tax-free in retirement?
A: Yes. Qualified withdrawals from a Roth 401(k) (after age 59½ and meeting the 5-year rule) are completely tax-free, including all the investment earnings.

Q: Do Roth 401(k) accounts have required minimum distributions?
A: No. Starting in 2024, Roth 401(k)s are not subject to RMDs during the original owner’s lifetime, meaning you are not forced to withdraw money at age 73 as you would with a Traditional 401(k).

Q: Does my employer match go into my Roth 401(k)?
A: No. Any employer matching contributions are always deposited into a pre-tax Traditional 401(k) account, even if your contributions are Roth. The match will be taxed upon withdrawal.

Q: Can high earners contribute to a Roth 401(k)?
A: Yes. Unlike Roth IRAs, Roth 401(k)s do not have income limits, so even very high earners can contribute the maximum to a Roth 401(k) if their employer offers the option.

Q: Can I roll over my Roth 401(k) into a Roth IRA when I leave my job?
A: Yes. When you change jobs or retire, you can roll a Roth 401(k) into a Roth IRA tax-free. This move can also eliminate RMDs, since Roth IRAs have no required distributions for the owner.

Q: Is a Roth 401(k) generally better for younger workers?
A: Yes. Younger workers in lower tax brackets often benefit from Roth 401(k)s because they pay low taxes now and enjoy decades of tax-free growth and withdrawals later.

Q: Is a Traditional 401(k) better if I want a tax break now?
A: Yes. If you need to reduce your taxable income immediately (for example, high earners looking for deductions), a Traditional 401(k) provides an upfront tax break that a Roth 401(k) does not.

Q: Can I switch my 401(k) contributions from Traditional to Roth later?
A: Yes. In most plans, you can adjust your contribution mix at any time. You might contribute to Traditional now and change to Roth in future years (or vice versa), according to your strategy.

Q: Does having a 401(k) at work stop me from contributing to a Roth IRA?
A: No. You can contribute to a Roth IRA if you meet the IRS income requirements, even if you also contribute to a 401(k). The 401(k) has no impact on Roth IRA eligibility.