401(k) vs. Roth 401(k): Which Is Better for You?

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In the past, a pension plan was the standard retirement program for companies that offered retirement benefits. Today, most companies offer self-directed retirement plans like the Roth 401(k) or the 401(k).

The Roth 401(k) and the 401(k), which have similarities and differences, are excellent retirement savings vehicles designed to help employees save for the future on a tax-advantaged basis.

While the plans are similar in many ways, there are important differences to understand. The biggest difference is the way contributions and distributions to each plan are taxed.

What Is the Difference Between a Roth 401(k) and a Traditional 401(k)?

It’s important to learn the differences between a Roth 401(k) and a traditional 401(k). Here are some main points:


When looking at a 401(k) vs. Roth 401(k) comparison chart, you’ll notice the many differences between the two.

For example, contributions to a 401(k) are made with pre-tax money, meaning that participants don’t have to pay income tax on the part of their paychecks they direct to the plan.

Distributions from a 401(k) during retirement are taxed as ordinary income based on the income tax rates in effect at that time. Other factors, such as contribution limits and distribution rules, are similar for the Roth 401(k) and the 401(k).

401(k) features:

  • Pre-tax contributions
  • Taxable distributions
  • Employer matching available
  • Maximum contributions of $19,500 for employees under age 50 and $26,000 for employees 50 and over
  • Tax penalty on distributions before age 50 ½
  • Required minimum distributions at age 72 (70 ½ for individuals who turned 70 ½ before Jan. 1)
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  • Participation can lower income taxes.
  • There’s no capital gains tax on appreciation.
  • Retirement savings are automatic.


  • Employers can end their plan.
  • Investments are limited to plan options.
  • Access to funds is restricted until at least age 59 ½.

Roth 401(k)

A Roth 401(k) is different from the standard 401(k) in that after-tax money is used to contribute to a Roth 401(k). This means that employees don’t get a tax break at the time they put money into the plan. Their tax benefit comes when they take money out.

When a participant in a Roth 401(k) takes qualified distributions in retirement, the funds are income tax-free.

Roth 401(k) features:

  • After-tax contributions
  • Tax-free distributions
  • Maximum contributions of $19,500 for employees under age 50 and $26,000 for employees 50 and over
  • Tax penalty on distributions before age 50 ½
  • No required minimum distribution while account owner is alive


  • Employers can match employee contributions.
  • The balance grows tax-free.
  • It’s an easy way to participate in stock and bond markets.


  • Fees such as monthly maintenance costs and record-keeping fees are pre-set.
  • The employer controls the plan.
  • Investment options are limited.

If you’re wondering what is better, 401(k) or Roth 401(k), the answer depends on several factors that are covered below.

Factors To Consider When Choosing Between a Roth or Traditional 401(k)

When considering the question of Roth 401(k) vs. before-tax 401(k), the biggest factor is current income. Your retirement income won’t be affected by the plan you choose while you are working, but your current take-home pay and income tax will.

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For high earners — in higher tax brackets — reducing taxable income by contributing to a standard 401(k) can save a lot of money. You’re essentially deferring your income tax payments until retirement, when your income and tax rates will probably be lower.

Retirement Savings

Something to think about is other retirement accounts you have. If you already have a Roth 401(k) with a significant balance, a traditional 401(k) will most likely be a better fit for you. Once you reach age 59 ½, you can manage your taxable income by strategically switching between those accounts to cover expenses.

Good To Know

Roth 401(k) plans tend to make more sense for younger people and employees in the lower tax brackets. When you’re earning less, the benefits of avoiding taxes on your income are not as important. Because your income and taxes may actually go up in retirement, the Roth 401(k) — and its tax-free distributions — may be the better choice.

401(k) or Roth 401(k) or Both

Before selecting one of these plans, make sure to keep these important factors in mind:

Take Stock of Your Finances

The question of pre-tax 401(k) vs. Roth 410(k) is too important to take lightly. If you are deciding between these plans, it’s important to analyze your financial situation and set realistic retirement goals.

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Review your previous year’s taxes to be sure of your tax bracket. Take the opportunity to update your household budget so you know exactly where you stand financially.

Use All the Tools in the Toolbox

Because you don’t know what your situation will be when you retire, it would be best to have some savings you can draw on tax-free. However, it’s not an all-or-nothing decision when it comes to Roth vs. traditional 401(k) plans. Contributing to both is ideal.

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If, for instance, you take on some part-time work that increases your income in retirement, you will be glad to have assets you can draw on without adding to your taxable income. If your income drops or is lower than you expected, taxable distributions are less burdensome.

Change It Up

Choose a Roth 401(k) when you are younger and earning less. If you take a higher-paying job when you get older, switch to a traditional 401(k). Balancing contributions to both accounts can mean having flexibility in your retirement income.

Should I Convert My 401(k) to a Roth 401(k)?

In certain circumstances, it could be beneficial to convert a 401(k) to a Roth 401(k). However, conversions have implications you need to consider.

Conversions Are Taxable Events

The drawback to conversion is that it comes with a potentially hefty tax bill. If you convert from a 401(k) to a Roth 401(k), the balance is taxed as income. If you’re in the 12% tax bracket, that equates to $1,200 in federal income tax for every $10,000 in the account, plus any state and local income tax you might have to pay. The income could also push you into a higher tax bracket.

How To Convert a 401(k) Into a Roth 401(k)

As the plan sponsor, your company can help you convert your plan. The process can be completed online or with some simple paperwork. If you decide to go forward, be sure to plan for any additional tax you’ll owe in the upcoming tax season.

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This article has been updated with additional reporting since its original publication.

Barri Segal and Joel Anderson contributed to the reporting for this article.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.


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