Roth 401(k) vs. Traditional 401(k)

Both 401(k) plans are taken out from the employee’s paycheck and deposit to an retirement saving account.

Both Roth and Traditional 401(k) are employer-sponsored plans for retirement savings. Employees can contribute to either or both of the accounts. Employers normally match some of the employee’s contributions. Mostly do 2-6% of matching. The biggest difference between the two are: Tax implications.

Roth 401(k) are made with “After-Tax” dollars. They are from income that was taxed before employee used it to make contribution. So when in retirement, Roth 401(k) withdrawals are tax-free.

Traditional 401(k) are made with “Pre-Tax” dollars. The contributor doesn’t need to pay tax in the year where they make contributions. However, the tax is due when they withdraw from the account.

All employer contribution are “Pre-Tax” dollars.

The maximum contribution for either type is $23,000 in 2024. However, if you are 50 or older, you can catch up contributing by making maximum contribution of $30,500 ($7,500 more per year).