Roth 401(k) vs. 401(k) – Which is Better?

The retirement plan landscape has changed dramatically in the last few years, with most plans now offering a Roth option. The Secure Act 2.0 passed in 2022 accelerated those changes by adjusting existing retirement plan rules. Among these is a feature that allows participants to treat employer-matching contributions as designated Roth contributions if the plan design allows.

Let’s look at some of the differences between a Roth and a traditional 401 (k):


Traditional 401(k) contributions are made with pre-tax income, meaning you don’t pay tax on the contribution – the contribution reduces taxable salary. When you withdraw funds at retirement or as required, you pay tax at ordinary income rates. So, a traditional 401 (k) contribution saves taxes now.

With the Roth, the contributions are made with after-tax dollars. The contribution is included in taxable wages on your W-2. There is no deduction at the contribution, but withdrawals are tax-free if you’ve held the account for five years and are 59 1/2 or older.

Which is better? Let’s say someone is in the highest federal tax bracket (37%) and pays state taxes at a 5% rate. They might take the deduction now and bet they’ll be in a lower tax bracket at retirement. Conversely, a young person starting out might forfeit the tax deduction if they are currently in a lower bracket to skip the tax in the future. They also have a long-time horizon for the funds to grow.

 Required Minimum Distributions

The Roth shines here—starting in 2024, there are no required minimum distributions. Generally, inherited Roth IRA accounts are subject to the same RMD requirements as inherited traditional IRA accounts. Withdrawals of contributions from an inherited Roth are tax-free, and most withdrawals of earnings from an inherited Roth IRA account are also tax-free. However, withdrawals of earnings may be subject to income tax if the Roth account is less than five years old at the time of the withdrawal.

The traditional IRA requires annual minimum distributions starting at age 73. Why? Because the money has never been taxed, and the US Treasury doesn’t want anyone to have an indefinite tax deferral. If you have a charitable intent, these are the best funds to leave to charity, particularly if you have other assets and a desire for your heirs to inherit.  

2024 Contribution Limits

The max 401K (Roth or Traditional) contribution for 2024 is $23,000. If you are 50 or over, you are eligible for an additional $7,500 catch-up, raising the combined limit to $30,500.

The Secure Act 2.0 increased the catch-up contribution in 2025 to $10,000 for those ages 60 to 63. In 2026, those with wages exceeding $145,000 are eligible for a catch-up contribution, but it will have to be made to a Roth account, which means no tax deduction for the catch-up.

The choice between a traditional 401(k) and a Roth 401(k) depends on many individual factors. It’s impossible to know what future tax rates might be or, ultimately, your tax rates and financial situation at retirement. There is no wrong answer, and if you aren’t sure, split contributions between the two and reassess periodically.

It is possible that Roth may become less appealing in the future, depending on tax legislation.

Contact your Dent Moses advisor if you have questions or wish to discuss specific options.