Roth 401(k) vs Traditional 401(k): Which Is Better?
Choosing between Roth and traditional 401(k) contributions is one of the most impactful retirement planning decisions you can make. The answer depends on your current and expected future tax rates.
What Is Roth 401(k)?
Roth 401(k) contributions are made with after-tax dollars. You pay taxes now, but all future growth and withdrawals in retirement are completely tax-free.
What Is Traditional 401(k)?
Traditional 401(k) contributions reduce your taxable income today. You get an immediate tax break, but you pay income tax on all withdrawals in retirement.
Key Differences
| Feature | Roth 401(k) | Traditional 401(k) |
|---|---|---|
| Tax benefit | Tax-free withdrawals | Tax deduction now |
| Upfront cost | Higher (pay tax now) | Lower (tax deferred) |
| Best if tax rate | Rises in retirement | Falls in retirement |
| RMDs | None (if rolled to Roth IRA) | Required at 73 |
| Employer match | Always pre-tax | Always pre-tax |
The Bottom Line
If you expect your tax rate to be higher in retirement (younger workers, rising income), choose Roth. If you are at your peak earning years and expect lower retirement taxes, traditional may save more. Many people split contributions between both.