Roth 401(k)

A Roth 401(k) is a 401(k) funded with after-tax contributions: the money goes in after payroll tax, grows untaxed, and comes out tax-free in retirement after age 59½ and five years of account seasoning. It shares the 2026 elective deferral limit of $24,500 with traditional 401(k) contributions, per IRS Notice 2025-67. Unlike the Roth IRA it has no income limit, which makes it the only direct high-income Roth the workplace offers. The employer match always lands pre-tax and is taxed on withdrawal.

The choice between Roth and traditional is a bet on tax rates: pay the tax now at today's marginal rate, or defer it and pay at the retirement rate. SECURE 2.0 added one mandate: from 2026, catch-up contributions for employees whose prior-year wages from the employer exceed roughly $150,000 (indexed) must be Roth. Since 2024, Roth 401(k) balances are no longer subject to required minimum distributions, which removed the last structural disadvantage against the Roth IRA.

The mechanics run through payroll. You elect a Roth percentage in the plan portal, and payroll withholds the contribution after income tax instead of before it, which is why a $500 Roth contribution costs more take-home than a $500 traditional one at the same salary. Inside the account the investments compound with no annual tax on dividends, gains, or rebalancing. Withdrawals after 59½, from an account at least five years old, are entirely tax-free, principal and growth. The employer match is contributed as traditional money regardless of your election, and it is taxed as ordinary income on withdrawal.

The decision math compares marginal rates. A worker at the 24% bracket who contributes $10,000 traditional pays $2,400 less in tax this year; the same $10,000 in Roth pays full tax now and never again. If the retirement bracket is lower than 24%, traditional wins; if it is higher, Roth wins; if they are equal, the two produce identical after-tax outcomes. Because brackets are progressive, the honest answer for most savers is a mix: traditional dollars fill the lower retirement brackets, and Roth dollars buy certainty above them. High earners face the SECURE 2.0 twist that their catch-ups are Roth by mandate from 2026.

The Roth 401(k) is the only direct Roth most high earners can access, since Roth IRA contributions phase out between $153,000 and $168,000 single in 2026 while the Roth 401(k) has no income test at all. It is also the account where tax-rate bets compound silently for decades, which is why the election deserves the same attention as the fund menu.

I watched a colleague named Brent (yes, that Brent) elect Roth on everything because it sounded better, without running the rates. At his 32% bracket the election cost roughly $960 a year more in take-home than traditional on the same $8,000 contribution, which he noticed as a missing raise and cancelled mid-year. The rate bet deserved ten minutes with a calculator; it got a vibe.

The highest-leverage thing most Americans can do is run the marginal-rate comparison honestly and split the election rather than pick a side. The marginal tax rate calculator shows what your bracket actually is, and the taxable versus deferred calculator prices the bet across decades.