Roth 401k vs 401k – How to Choose

roth 401k vs 401k

Roth 401k vs 401k: Which is Best for You?

When you’re faced with whether you are better off contributing to Roth 401k vs 401k, it comes down to a few differences that can make a big difference in your retirement.

The Basics

Traditional 401(k) and Roth 401(k) are options for workplace retirement savings, and employers are allowed to contribute to both.

Traditional 401(k)

  • Contributions are pre-tax, so it reduces your current adjusted gross income.
  • What you take out in retirement is taxed as ordinary income.
  • To avoid penalties, you must not make withdrawals before age 59-1/2, with some exceptions.
  • Not including any employer contributions, you can contribute up to $19,000 a year if you are younger than 50 and up to $25,000 at age 50 and older.

Roth 401(k)

  • Contributions are after taxes and current adjusted gross income is not affected.
  • What you take out in retirement is not taxed because you’re paying taxes up front.
  • You can contribute up to $19,000 a year if you are younger than 50 and up to $25,000 at age 50 and older.
  • You can take money out of the account after it has been kept for at least five years, on or after the age 59-1/2 or due to disability or death.
  • You must begin taking distributions at 70-1/2.
  • You can roll distributions over into a Roth IRA.

Which Should You Choose?

Are you better off being taxed up front, or waiting to have taxes taken out at retirement?

Consider a traditional 401(k) if:

  • You expect your income to be lower in retirement. A lower income in retirement can reduce taxes on your Social Security benefits and Medicare premiums.
  • For better after-tax benefits, you can invest any tax savings you receive from each year’s contribution to match what you could accumulate.

Consider a Roth 401(k) if:

  • You expect your income to be higher in retirement.
  • You want to be able to benefit from the total in your account, without having it reduced with taxes.
  • You aren’t able to or don’t want to invest your tax savings each year.


You can choose to fund BOTH a traditional and a Roth 401(k) in order to change-up your tax situation in retirement.

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About Barbara Howington

In a 40-year career that began as editor for a college public affairs department, Barbara has been an instructional media script writer, public relations director, marketing manager, account manager, and co-owner of a graphic design, marketing and public relations firm. For the past several years, she has funneled her knowledge and insight into copywriting, her favorite part of every professional position she’s held.