What is a Roth 401(k) and how does it work?

A Roth 401(k) is an employer-sponsored retirement plan that allows employees to contribute after-tax dollars. While there is no upfront tax deduction, qualified withdrawals in retirement—including earnings—are tax-free, provided IRS requirements are met.

What are the Roth 401(k) contribution limits for 2026?

For 2026, the annual contribution limit for both traditional and Roth 401(k) plans is $24,500. Individuals age 50 and older may contribute up to $32,500, including catch-up contributions. These limits apply cumulatively across both account types with the same employer.

Are employer matching contributions tax-free in a Roth 401(k)?

No. Employer matching contributions are made with pre-tax dollars and are placed in a separate account. These funds will be taxed as ordinary income when withdrawn in retirement.

Can I contribute to both a traditional 401(k) and a Roth 401(k)?

Yes. Many employers allow employees to split contributions between traditional and Roth 401(k) accounts. However, total contributions cannot exceed the annual IRS limit for that year.

Are there income limits for contributing to a Roth 401(k)?

No. Unlike Roth IRAs, Roth 401(k) plans do not have income restrictions. This makes them an attractive retirement savings option for high-income earners who may not qualify for direct Roth IRA contributions.

How do I decide whether a Roth 401(k) is right for my retirement plan?

Choosing between a Roth 401(k) and a traditional 401(k) depends on several factors, including your current income, expected future tax bracket, retirement goals, and overall financial strategy. Working with a qualified financial advisor or tax professional—such as Atlantic Wealth Advisors in Glastonbury, Connecticut—can help you determine the most tax-efficient retirement savings approach.

What Is a Roth 401(k)? — Atlantic Wealth Advisors

While many people are familiar with the benefits of traditional 401(k) plans, others are not as acquainted with Roth 401(k)s.

Since January 1, 2006, employers have been allowed to offer workers access to Roth 401(k) plans. As the name implies, Roth 401(k) plans combine features of 401(k) plans with those of a Roth IRA.1,2,3

With a Roth 401(k), contributions are made with after-tax dollars – there is no tax deduction on the front end – but qualifying withdrawals are not subject to income taxes. Any capital appreciation in the Roth 401(k) also is not subject to income taxes.

What to Choose?

For some, the choice between a Roth 401(k) and a traditional 401(k) comes down to determining whether the upfront tax break on the traditional 401(k) is likely to outweigh the back-end benefit of tax-free withdrawals from the Roth 401(k).

Please remember, this article is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax professional before adjusting your retirement strategy to include a Roth 401(k).

Often, this isn’t an “all-or-nothing” decision. Many employers allow contributions to be divided between a traditional 401(k) plan and a Roth 401(k) plan – up to overall contribution limits.

Considerations

One subtle but key consideration is that Roth 401(k) plans aren’t subject to income restrictions like Roth IRAs are. This can offer advantages to high-income individuals whose Roth IRA has been limited by these restrictions. (See accompanying table.)

*This is an aggregate limit by individual rather than by plan. The total of an individual’s aggregate contributions to his or her traditional and Roth 401(k) plans cannot exceed the deferral limit – $24,500 in 2026 ($32,500 for those over age 50 and $35,750 for those between the ages of 60 and 63).
Source: IRS.gov, 2026

Roth 401(k) plans are subject to the same annual contribution limits as regular 401(k) plans – $24,500 for 2026; $32,500 for those over age 50. These are cumulative limits that apply to all accounts with a single employer; for example, an individual couldn’t save $24,500 in a traditional 401(k) and another $24,500 in a Roth 401(k).4

Another factor to consider is that employer matches are made with pretax dollars, just as they are with a traditional 401(k) plan. In a Roth 401(k), however, these matching funds accumulate in a separate account, which will be taxed as ordinary income at withdrawal.

Setting money aside for retirement can be part of a sound personal financial strategy. Deciding whether to use a traditional 401(k) or a Roth 401(k) often involves reviewing a wide range of factors. If you are uncertain about what is the best choice for your situation, you should consider working with a qualified tax or financial professional.

FAQs About a Roth 401(k)

A Roth 401(k) is an employer-sponsored retirement savings plan that allows you to contribute after-tax dollars. Unlike a traditional 401(k), you do not receive a tax deduction when you make contributions. However, qualified withdrawals in retirement—including investment growth—are tax-free, provided IRS requirements are met. This structure can make a Roth 401(k) an attractive option for long-term, tax-efficient retirement planning.
The main difference is how each plan is taxed. A traditional 401(k) allows you to contribute pre-tax dollars, which reduces your taxable income today, but withdrawals in retirement are taxed as ordinary income. A Roth 401(k) is funded with after-tax dollars, meaning there’s no upfront tax break—but qualified withdrawals are tax-free.
Choosing between the two often depends on whether you expect to be in a higher or lower tax bracket in retirement.
For 2026, the annual contribution limit for both traditional and Roth 401(k) plans is $24,500. Individuals age 50 and older can contribute up to $32,500, which includes catch-up contributions.
It’s important to note that these limits are cumulative. You cannot contribute $24,500 to a traditional 401(k) and another $24,500 to a Roth 401(k) with the same employer—the total combined contribution must stay within the IRS limit.
No. Employer matching contributions are made with pre-tax dollars, even if you contribute to a Roth 401(k). These matching funds are placed in a separate pre-tax account and will be taxed as ordinary income when withdrawn in retirement.
Yes, many employers allow you to split your contributions between a traditional 401(k) and a Roth 401(k). This can provide tax diversification in retirement. However, your total combined contributions must stay within the annual IRS limit.
No. Unlike Roth IRAs, Roth 401(k) plans do not have income restrictions. This makes them especially valuable for high-income earners who may be ineligible to contribute directly to a Roth IRA but still want the benefit of tax-free withdrawals in retirement.
Deciding between a Roth 401(k) and a traditional 401(k) depends on several factors, including your current tax bracket, expected future income, retirement timeline, and overall financial strategy.
Because this decision can significantly impact your long-term retirement income and tax efficiency, working with a qualified financial professional—such as Atlantic Wealth Advisors in Glastonbury, Connecticut—can help you evaluate your options and build a retirement plan aligned with your goals.

1. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth 401(k) distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawals also can be taken under certain other circumstances, such as a result of the owner’s death or disability. Employer matches are pretax and not distributed tax-free during retirement. Once you reach age 73, you must begin taking required minimum distributions.
2. In most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 73. Withdrawals from your 401(k) or other defined contribution plans are taxed as ordinary income, and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
3. Roth IRA contributions cannot be made by taxpayers with high incomes. In 2026, the income phaseout limit is $168,000 for single filers, $252,000 for married filing jointly. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawals also can be taken under certain other circumstances, such as a result of the owner’s death or disability. The original Roth IRA owner is not required to take minimum annual withdrawals.
4. IRS.gov, 2026

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2026 FMG Suite.

What Is a Roth 401(k)?