What is Roth 401(k)?

A Roth 401(k) is an employer-sponsored retirement savings account that combines the high contribution limits and potential employer matching of a traditional 401(k) with the tax-free withdrawal benefits of a <a href="/calculators/ira" class="text-emerald-600 dark:text-emerald-400 hover:text-emerald-700 dark:hover:text-emerald-300 hover:underline font-semibold transition-colors duration-200">Roth IRA</a>. Technically classified by the IRS as a 'designated Roth account,' it is funded exclusively with after-tax salary deductions. This means contributions do not reduce the employee's taxable income for the current tax year. However, in exchange, the principal contributions and all associated investment earnings compound tax-free. Qualified distributions (including both contributions and earnings) are 100% tax-free when withdrawn in retirement, provided the account owner is at least age 59½ and has held the account for at least five tax years.

For the 2026 tax year, the Roth 401(k) shares the same high contribution limits as a traditional 401(k), permitting an elective deferral limit of $24,500 ($23,500 in 2025). Participants aged 50 and older can make an additional catch-up contribution of $8,000 in 2026 ($7,500 in 2025). Furthermore, under the SECURE 2.0 Act, individuals aged 60 to 63 in 2026 benefit from an elevated catch-up limit of $11,250. However, SECURE 2.0 also mandates that starting in 2026, any catch-up contributions made by employees whose prior-year wages from that employer exceeded $145,000 must be deposited into a Roth account, meaning high earners will be required to use the Roth 401(k) format for catch-up balances.

Another notable feature of the Roth 401(k) is how employer matching is handled. Historically, all employer matching contributions were required to be deposited on a pre-tax basis into a traditional 401(k) account, making those matched funds taxable upon withdrawal. Under provisions of the SECURE 2.0 Act, employers are now permitted to offer employees the option to designate matching contributions as Roth (after-tax) contributions. If chosen, these matched funds are taxable to the employee in the year they are contributed, but they will grow and be withdrawn tax-free in retirement. Additionally, SECURE 2.0 eliminated lifetime Required Minimum Distributions (RMDs) for designated Roth 401(k) accounts starting in 2024, bringing their tax advantages fully in line with Roth IRAs.