401(k) vs Roth 401(k): Which Is Better?

Most employers now offer both a traditional 401(k) and a Roth 401(k), and the question comes up every open enrollment: which one should I pick? The answer depends on your current tax bracket, your expected tax bracket in retirement, and your age. Here is the complete analysis with actual numbers.

The Core Difference: When You Pay Taxes

Both accounts grow tax-free while the money is invested. The difference is when Uncle Sam takes his cut:

• Traditional 401(k): Contributions are pre-tax. You pay no income tax on the money going in, but you pay income tax on every dollar you withdraw in retirement.
• Roth 401(k): Contributions are after-tax. You pay income tax on the money going in, but withdrawals in retirement (both contributions and growth) are completely tax-free.

Think of it as a choice between a tax break now or a tax break later. The financially optimal answer depends on whether your tax rate is higher now or will be higher in retirement.

2026 Contribution Limits

For 2026, the combined employee contribution limit for traditional and Roth 401(k) is $24,500 (up from $23,500 in 2025). If you are 50 or older, you can contribute an additional $7,500 in catch-up contributions, for a total of $32,000.

Important: this limit applies to your combined contributions across both traditional and Roth. You can split contributions between them however you like — for example, $15,000 traditional and $9,500 Roth — but the total cannot exceed $24,500.

Employer matching contributions always go into the traditional (pre-tax) side, regardless of which type you choose for your own contributions. This is a tax rule, not an employer decision.

When Traditional 401(k) Wins

The traditional 401(k) is better when your tax rate today is higher than your tax rate in retirement. This is the case for many people in their peak earning years:

• You are in a high tax bracket now (24%+). If you earn $120,000 and expect to withdraw $60,000-$70,000/year in retirement, your retirement tax rate will be lower.
• You are nearing retirement. Less time for Roth growth to compound tax-free, and you'll be drawing down soon at a potentially lower rate.
• You live in a high-tax state now but plan to retire in a no-income-tax state (like Florida or Texas). The state tax savings compound the advantage.
• You need to maximize the amount working for you now. A $24,500 traditional contribution reduces your taxable income by $24,500. A $24,500 Roth contribution costs you more out of pocket because you've already paid taxes on that money.

Use our tax calculator to check your current federal bracket.

When Roth 401(k) Wins

The Roth 401(k) is better when your tax rate today is lower than your expected tax rate in retirement:

• You are early in your career and in a low bracket (10-12%). Paying taxes at 12% now to avoid taxes at 22-24% later is a clear win.
• You expect your income to grow significantly. A 28-year-old software engineer earning $75,000 who expects to earn $200,000+ later should lock in today's low rate.
• You believe tax rates will increase in the future. Federal debt levels and demographic trends suggest rates could rise. Roth hedges against that risk.
• You want tax-free income in retirement to manage Medicare premium brackets (IRMAA), Social Security taxation, and required minimum distributions.
• You already have large traditional 401(k) balances. Tax diversification — having both pre-tax and after-tax retirement accounts — gives you flexibility to optimize taxes year by year in retirement.

Worked Example: $100,000 Salary in the 22% Bracket

Let's compare for someone earning $100,000 gross, filing single, contributing the maximum $24,500 to their 401(k), with a 7% average annual return over 25 years.

Traditional 401(k) Path

• Annual contribution: $24,500 pre-tax
• Tax savings now: $24,500 x 22% = $5,390/year
• After 25 years at 7%: approximately $1,581,000
• Withdrawing $80,000/year in retirement, effective tax rate ~14%: $11,200 annual tax
• After-tax retirement income from this source: $68,800/year

Roth 401(k) Path

• Annual contribution: $24,500 after-tax (costs you $24,500 + $5,390 in taxes = $29,890 of gross income)
• Tax savings now: $0
• After 25 years at 7%: approximately $1,581,000
• Withdrawing $80,000/year in retirement: $0 tax
• After-tax retirement income from this source: $80,000/year

The Roth path delivers $11,200 more per year in retirement spending power. But the traditional path freed up $5,390 per year for 25 years. If you invest that tax savings in a taxable brokerage account at 7%, it grows to roughly $347,000 — which, after capital gains taxes, provides about $310,000 in additional wealth.

In this scenario, the Roth is slightly better if retirement tax rates stay at or above 22%. The traditional is better if retirement tax rates drop below 18%. The closer the rates, the closer the outcome.

Model your own scenario with our 401(k) calculator.

The Best Answer: Do Both

If you are unsure, split your contributions. Put some in traditional and some in Roth. This gives you tax diversification — the ability to draw from pre-tax and after-tax accounts in retirement to optimize your tax bill each year.

A common approach: contribute enough traditional to fill up the 12% or 22% bracket, then put the rest in Roth. This way, you get a tax break on income that would be taxed at higher rates and pay Roth taxes on income in lower brackets.

The employer match going pre-tax means you already have some traditional balance building. Adding Roth on top creates the diversification naturally.

What About a Roth IRA Instead?

If your employer doesn't offer a Roth 401(k), or you want additional Roth savings beyond the 401(k) limit, a Roth IRA is an excellent complement. The 2026 Roth IRA contribution limit is $7,000 ($8,000 if 50+), with income phase-outs starting at $150,000 for single filers and $236,000 for joint filers.

The ideal setup for many people: max out the employer match in a traditional 401(k), then max a Roth IRA, then go back and fill the remaining 401(k) space. This balances pre-tax and after-tax retirement savings while prioritizing the most flexible accounts.

Run the numbers for your specific situation using our retirement calculator to see how different contribution strategies affect your retirement readiness.