According to the Plan Sponsor Council of America, Roth 401(k)s are now permitted for nearly 90% of retirement plans. If your employer is among them, you may be wondering how a Roth 401(k) differs from a Roth IRA.
"Both Roth IRAs and Roth 401(k)s are funded with after-tax dollars—meaning there's no upfront tax benefit for contributing—but once you get to retirement, you can make qualified withdrawals of contributions and earnings totally tax-free,"1 said Hayden Adams, CPA, CFP®, director of tax and financial planning at the Schwab Center for Financial Research. "However, Roth 401(k)s offer additional benefits that should not be overlooked." Chief among them:
- No income limits: Anyone can contribute to a Roth 401(k), if available, regardless of income level. In contrast, only individuals earning less than $146,000 in 2024 or $150,000 in 2025—or married couples earning less than $230,000 in 2024 or $236,000 in 2025—can contribute the full amount to a Roth IRA. "Higher earners often access Roth IRAs by converting their traditional IRAs, but doing so can potentially trigger a big tax bill," Hayden explained. "Saving in a Roth 401(k) could be a better way to go if the taxes on a Roth IRA conversion are prohibitive."
- Higher contribution limits: In 2024, you could stash away up to $23,000 in a Roth 401(k)—$30,500 if you were age 50 or older. For 2025, that figure has increased to $23,500 or $31,500 for those 50 and older.2 Roth IRA contributions, by comparison, remain capped at $7,000—$8,000 if you're 50 or older—for the 2024 and 2025 tax years.
- Matching contributions: Roth 401(k)s are eligible for matching contributions from your employer, if offered. That said, most employer's matching contributions are currently pretax and will be placed in a regular, tax-deferred 401(k) account, which means you'll be taxed once you start taking distributions. Based on SECURE Act 2.0 changes to this rule, it's likely we'll see more employers allow matching contributions to Roth accounts in the future.
As of tax year 2024, Roth 401(k)s are no longer subject to required minimum distributions (RMDs). However, as compared to Roth IRAs, you'll be limited to the investments offered by your company's plan. Investment fees may also be higher.
"Nevertheless, Roth 401(k)s can still be a great tool—especially for high-wage earners and/or those who anticipate higher taxes in retirement," Hayden said.
1Account holder must be 59½ or older and have owned the account for at least five years.
2You may choose to split your contributions between Roth and traditional 401(k)s, but your combined contributions can't exceed the limits. For 2025 those age 60 to 63 can make a catchup contribution of $11,250.
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