With a Roth 401(k), money that you withdraw in retirement will be tax-free(Image credit: Debby Lowe / Getty Images)You probably already know if your employer offers a 401(k) plan to help you save for retirement. But there may be another option on offer that you are less familiar with — and in some situations, could serve you even better: a Roth 401(k).As of 2023, “about 93% of 401(k) plans offer a Roth savings option to workers, up from 62% a decade ago,” said CNBC, citing a poll by the Plan Sponsor Council of America. Thanks to the changes spurred by retirement law Secure 2.0, “it’s likely the remaining holdouts will soon offer it, too.” However, as of now, “many aren’t taking advantage of Roth availability: About 21% of eligible workers made a Roth contribution in 2023, versus 74% who made a pretax contribution.”While both types of contributions can benefit retirement preparation, there are key differences between the two savings options that can make one more beneficial than the other in certain scenarios.Subscribe to The WeekEscape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
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Sign up for The Week’s Free NewslettersFrom our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.What is a Roth 401(k)?A Roth 401(k) is a type of retirement savings account that allows you to “make contributions with after-tax money, so you won’t enjoy a tax break today,” said Bankrate. This is in contrast to the traditional 401(k), where contributions are made pre-tax, and you then pay income taxes when you withdraw funds later on. With a Roth 401(k), “any money that you withdraw in retirement will be tax-free,” said Bankrate.Otherwise, “the contributions are made through regular payroll deductions and have the same limits as a tax-deferred 401(k),” said Fidelity. As of 2025, the annual contribution limit for both the 401(k) and Roth 401(k) is $23,500, with additional catch-up contributions permitted for those age 50 and up, according to NerdWallet.Withdrawals from a Roth 401(k) are penalty-free if “the account has been held for five years or more and the distribution is due to disability or death or on or after age 59 ½,” said NerdWallet. Further, said Kiplinger, “thanks to the SECURE 2.0 Act, you no longer must take required minimum distributions (RMDs) from Roth 401(k)s during your lifetime,” which traditional 401(k) plans are subject to.What are the benefits of a Roth 401(k)?A Roth 401(k) does not offer immediate tax benefits at the time of contributions, as contributions “are made using after-tax dollars” and “don’t reduce your taxable income,” said Investopedia. However, there are a number of other upsides a Roth 401(k) can offer, including:Tax-free distributions in retirement. With a Roth 401(k), withdrawals
