A traditional 401(k) used to be the standard for retirement savings, but the Roth 401(k) has surged in popularity in recent years, leaving many workers to wonder if it's worth switching. The answer could be yes, but it depends a lot on your tax bracket and how you see that changing between now and retirement.
It's important to understand the key differences between the two types of accounts if you want to make an educated decision about which is right for you. Or you might decide to stash some money in both.
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Contributions
The primary difference between traditional 401(k)s and Roth 401(k)s is when you pay taxes on the money. With a Roth 401(k), you pay taxes on your contributions in the year you make them. This means a higher tax bill today and less money at hand to pay for it. But it could be your best move over the long term if you expect your tax bracket to rise or stay the same. More on that in a minute.
Traditional 401(k)s give you a tax deduction for your contributions. So, for example, if you made $50,000 and you put $2,000 in a traditional 401(k) in 2025, then you'd only owe taxes on the remaining $48,000 this year. You wouldn't have to worry about taxes on your 401(k) contribution until you withdraw the funds later. This could be a smart choice if you believe you'll be in a much lower tax bracket in retirement than you are currently.
Regardless of which type of 401(k) you choose, you're limited to $23,500 in total contributions to all 401(k)s in 2025 if you're under 50. Those aged 50 to 59 or 64 or older may contribute up to $31,000, and those aged 60 to 63 may save up to $34,750. These limits may increase in 2026.
Withdrawals
When you withdraw money from traditional 401(k)s, you owe ordinary income taxes on your withdrawals, plus a 10% early withdrawal penalty if you're under 59 1/2 at the time. There are exceptions that can help you avoid this penalty, though.
Roth 401(k) withdrawals are generally tax- and penalty-free in retirement, provided you're at least 59 1/2 and have had the account for at least five years before taking the money out. There's a similar rule for Roth IRAs. Early Roth 401(k) withdrawals can still result in penalties and ordinary income tax on earnings.
Retirement is where Roth 401(k)s become incredible assets because your withdrawals don't count toward your taxable income, which can help your savings go further. You also don't have to worry about required minimum distributions (RMDs) -- mandatory annual withdrawals the government requires you to take from traditional 401(k)s, generally beginning in the year you turn 73. You're allowed to keep your Roth 401(k) funds invested for as long as you'd like.
Matching contributions
Employers may match contributions to either your traditional or Roth 401(k), though it's up to each employer's discretion. Not all companies offer 401(k) matches, but if yours does, it's worth taking advantage of it every year if you can. This is free money that could grow to be worth tens of thousands of dollars by your retirement.
In the past, employers had to make traditional, pre-tax 401(k) matches, regardless of whether you saved in a traditional or Roth 401(k). But now companies have the option to make Roth 401(k) matches too. That doesn't mean they will, though. Check with your employer if you're not sure whether your match is pre-tax or after-tax.
Again, it's fine to save money in both types of 401(k) if you have access to them. Just make sure your total contributions to both accounts don't exceed the annual contribution limit. You may also want to favor the account that you think will provide you with the greatest tax advantages.
