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

The traditional 401(k) is a workplace retirement savings plan that allows you to save for retirement with contributions taken straight out of your paycheck—before taxes. Those automatic contributions are a super convenient way to make sure you’re consistently building your retirement savings, which is awesome.

And that plan—the traditional 401(k)—was the only game in town until 2006. That’s when a new contender entered the ring: the Roth 401(k).

The Roth 401(k) combines some features from the traditional 401(k) with the tax advantages of the Roth IRA. In fact, those tax advantages are the main reason the Roth 401(k) beats the traditional 401(k)hands down.

We’re such big fans of the Roth plan that in a Roth 401(k) vs. 401(k) showdown, we’d go with Roth every time! You want to make the best decision for your retirement goals, right? Let’s dig in and compare the options.

Roth 401(k) vs. Traditional 401(k): How Are They Similar?

Traditional and Roth plans have some of the same features. Both give you the chance to make automatic contributions to your 401(k) straight from your paycheck, which makes saving for retirement a breeze.

Both types of 401(k) plans usually come with a company match too. That means your employer promises to contribute money into your account up to a certain amount (that’s free money, so definitely take advantage of it!). The match in a Roth plan can differ, but we’ll talk more in the next section about how that works.

Traditional and Roth 401(k)s also have the same contribution limits:

• For 2025, you can contribute up to $23,500 to your 401(k). For 2024, that amount was $23,000 (the IRS usually adjusts contribution limits each year based on inflation).
• There’s also a nice little catch-up provision for those getting close to retirement. Most folks age 50 and older can contribute an additional $7,500 (for a total of $31,000) in 2025.
• Brand new for 2025, if you’re between 60–63 years old, you’re eligible for a higher catch-up provision that lets you contribute an additional $11,250 (for a total of $34,750).²
• Your employer can legally contribute even more for your retirement than you. In 2024, the total contribution amount was $69,000, but for 2025, it has been increased to $70,000—so if you max your portion at $23,500, they can legally kick in up to $46,500.³

So, the Roth 401(k) includes some of the best features of a traditional 401(k). Awesome, right? Hang on, because the Roth 401(k) gets even better.

Roth 401(k) vs. Traditional 401(k): How Are They Different?

Now that we’ve covered what the two types of 401(k)s have in common, let’s talk about the three things that set the Roth and traditional accounts apart from each other. That includes how your contributions are treated, what happens when you withdraw money in retirement, and your ability to access your funds before and after you retire.

Contributions

The main difference between traditional and Roth 401(k)s is how your contributions are taxed. A Roth 401(k), for example, is an after-tax retirement savings account. That means your contributions go into your Roth account after they’re taxed. Basically, you’re paying taxes now so you don’t have to pay later.

But the traditional 401(k) is a pretax retirement savings account. When you invest this way, your contributions go in before they’re taxed, which can reduce your taxable income on Tax Day every year. But all you’re really doing is kicking the can down the road, because you’ll have to pay taxes when you take that money out of your account in retirement. You can’t escape the tax man forever.

Withdrawals

If you have a traditional 401(k), you’ll pay taxes on any amount you withdraw in retirement based on your income tax rate at that point in time. But with a Roth 401(k), because you already paid taxes on your contributions, the withdrawals you make in retirement are tax-free.

This may sound like something only Captain Obvious would say, but your retirement savings will last longer if you don’t have to pay taxes on your withdrawals. That’s why Roth plans have a huge advantage over traditional retirement savings accounts—and why you should take advantage of all the Roth options you have.

Okay, now let’s talk about that employer match. Until recently, your employer’s contributions had to go into a separate pretax bucket, even if you had a Roth plan. However, since 2024 (under Section 602 of the SECURE 2.0 Act), your employer’s match can be after-tax instead of pretax, as long as they've structured your workplace plan that way.⁴

Want an example of how it works? Let’s say you have $1 million in your nest egg when you retire. That’s a pretty nice stash! If it’s in a traditional 401(k), every penny you withdraw in retirement is subject to income taxes. Depending on your tax bracket and what the tax rates are when you retire (and who knows what those will be), you could owe hundreds of thousands of dollars in taxes throughout your retirement. But if your retirement savings are parked in a Roth 401(k), most, if not all (depending on how your employer structured their match under the SECURE 2.0 Act), of that $1 million is all yours, since you already paid taxes on it.

Ramsey Solutions is a paid, non-client promoter of participating pros. 

Access

Whether you have a traditional or Roth 401(k), you can start receiving distributions at age 59 1/2. But the Roth plan has an additional rule: Your account has to be at least five years old.⁵

Now, if you’re still decades away from retirement, that five years is nothing to worry about. But if you’re approaching 59 1/2 and thinking about opening a Roth 401(k), be aware that if you make withdrawals within those first five years, you’ll pay a penalty.

But in terms of access, the required minimum distribution (RMD) is the biggest difference between the two types of plans. If you have a traditional 401(k), the IRS requires you to start making withdrawals from your account beginning at age 73 (they want that tax money, baby).

Thanks to the SECURE 2.0 Act, Roth 401(k)s no longer have RMDs. If you’re the original account owner, you can leave your Roth 401(k) untouched for as long as you want.⁶

Why We Recommend the Roth 401(k)

If you’re investing consistently every month, whether it’s in a traditional or Roth 401(k) (or even a Roth IRA), you’re already on the right track. But if you’re looking for the best retirement savings option, there are two big reasons the Roth 401(k) comes out on top.

No Taxes on Growth or Withdrawals

The tax-free growth and tax-free withdrawals that come with a Roth 401(k) are simply too good to pass up. Anytime you can legally minimize your tax burden, that decision makes itself.

It may be tempting to take the tax break now so you can take home a little more in your paycheck today. But you’ve got to think about these things with a long-term mindset. You’re already working hard to save for retirement. Why wouldn’t you do all you can to make sure that money goes even further when you need it most?

Here’s something else to keep in mind: No one knows how tax brackets and tax rates will change in the future—especially if you’re still decades away from retirement. It may sting a little to pay taxes on your retirement contributions today, but your older self will thank you.

Plus, the longer you save for retirement, the more compound interest goes to work for you. In other words, the more time your 401(k) has to do its thing, the more its balance is actually just compound interest growth. And with a Roth, none of that growth is subject to a single dime in taxes.

Bottom line: Waiting to pay taxes on your retirement savings at withdrawal time—like you would with a traditional 401(k)—could increase your tax liability by a lot. It makes more sense to pay taxes on it in the beginning, before it grows.

Peace of Mind

Like it or not, it’s hard to separate emotions from investing. Imagine finally stepping into retirement, then watching your $1 million nest egg get whittled down by hundreds of thousands of dollars because of taxes. We bet you’d miss $100,000 in retirement a lot more than $100 in a paycheck today.

Besides, once you’re in the habit of investing 15% of every paycheck for retirement, you probably won’t even miss the money you’re paying in taxes. Plus, you’ll have peace of mind from knowing the tax bill has already been handled.

This article provides general guidelines about investing topics. Your situation may be unique. To discuss a plan for your situation, connect with a SmartVestor Pro. Ramsey Solutions is a paid, non-client promoter of participating Pros.