What Is a Roth 401(k)?

The arena of employer-sponsored retirement plans has been dominated by 401(k) plans that are funded with pre-tax contributions, which effectively defers taxes until distributions begin. However, Roth 401(k) is funded with after-tax money just like a Roth IRA, allowing retirees to enjoy qualified tax-free distributions once they reach age 59½ and have met the five-year holding requirement.

It might be smart to invest in a Roth 401(k) if you believe that you will be in a higher tax bracket during retirement. This is always a possibility, especially if you end up with fewer tax deductions during your post-working years. On the other hand, if you expect to be in a lower tax bracket during retirement, then deferring taxes by investing in a traditional 401(k) may be the answer for you. If you have not been able to contribute to a Roth IRA because of the income restrictions, you will be happy to know that there are no income limits with a Roth 401(k).

Employers may match employee contributions to a Roth 401(k) plan, but any matching contributions must go into a traditional 401(k) account. That is, employer contributions and any earnings are always made on a pre-tax basis, and are taxable when distributed from the plan.

If an employer offers a Roth 401(k) plan, employees have the option of contributing to either the regular (pre-tax) or the Roth account, or even both at the same time. If you do not know which type of account would be better for your financial situation, you might split your contributions between the two types of plans. It’s important to note that in 2025 your combined annual contributions to a 401(k) plan cannot exceed $23,500 (an increase of $500 from 2024) if you are under age 50. If you are 50 or older you can contribute an additional $7,500 (unchanged from 2024). These amounts are indexed annually for inflation.

New for 2025, workers age 60 to 63 can make a larger "super catch-up" contribution of $11,250. Like all catch-up contributions, the age limit is based on age at the end of the year, so you are eligible to make the full $11,250 contribution if you will turn 60 to 63 any time during 2025, but not if you will turn 64.

If your employer offers a Roth 401(k) plan and allows in-plan Roth conversions, you can make transfers to a Roth 401(k) account at any time. Conversion is a taxable event. Funds converted are taxed as ordinary income in the year of the conversion.

Upon separation of service, you can roll over your Roth 401(k) assets to another Roth 401(k), a Roth 403(b), or a Roth IRA. Assets cannot be rolled over to a traditional 401(k) account. If you transition from an employer that offers a Roth 401(k) account to an employer that does not, your only option would be to roll the assets directly to a Roth IRA or to leave your money in your former employer’s plan (if allowed).

Beginning in 2024, Roth 401(k)s and other Roth employer-based accounts will no longer be subject to RMDs just like traditional accounts. You must generally begin taking distributions after reaching age 73 (75 if you reach age 73 after December 31, 2032), either as a lump sum or on a required minimum distribution schedule based on your life expectancy. However, unlike traditional 401(k) withdrawals, Roth distributions would be free of federal income taxes.

If you see the advantages of having tax-free income in retirement, then you might consider a Roth 401(k). It allows you to contribute more annually than you could to an IRA, and the tax-free distributions won’t add to your income tax liability. Of course, before taking any specific action, you might want to consult with your tax professional.

The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the ­purpose of ­avoiding any ­federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the ­purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2025 Broadridge Financial Solutions, Inc.