Home > Benefits > Beginner

Benefits Beginner: Introduction to 401(k) Plans

Introduction to 401(k) Plans Making Contributions to a 401(k) Plan 401(k) Plan Contribution Requirements 401(k) Plan Distribution Requirements Other Types of 401Ks: Starter, Solo, and SIMPLE The Roth 401(k) 401(k) Rollovers Types of 401(k) Rollovers Summary of 401(k) Plans
Image for The Roth 401(k)

The Roth 401(k)

(6 of 9)

The Roth 401(k)

Employers who provide 401(k) plans to their employees have the option to offer the Roth version as well. Essentially, the Roth 401(k) works the way a Roth IRA works. Any contributions made to the plan are not eligible for tax deduction. However, when the funds are withdrawn (provided that you are at least age 59½ and your account is at least five years old), they are not taxed. An extra bonus is that any growth in the account, whether by appreciation or earnings that you reinvested, is also not taxed.

Things To Know

  • When Roth 401(k) funds are withdrawn, they are not taxed.
  • A Roth 401(k) can be advantageous if you expect to be in a higher tax bracket after age 59½.

Here are some more things to remember about the Roth 401(k)

  • There are no yearly income limits that you must fall under in order to contribute to a Roth 401(k), as there are for a Roth IRA. Also, you may contribute to both a standard 401(k) and a Roth 401(k), provided that you do not exceed the yearly maximum. For 2025, the limit is $23,500.
  • Employers may contribute matching funds to their employees’ Roth 401(k)s. However, these matching funds are not after-tax, like the contributions made by employees. They are before-tax, meaning that they must be kept separate from Roth account funds. Upon withdrawal, then, the matched portion of the account will be subject to federal income tax.
  • As with standard 401(k)s, you will be penalized for taking withdrawals before age 59½. Due to recent legislation, minimum distributions are no longer be required from Roth accounts (they were previously required at age 73).
  • On your income tax forms, your Roth distributions will not be counted as income; those matched by your employer will be.

Is the Roth 401(k) for you? It can certainly be advantageous if you expect to be in a higher tax bracket after age 59½ than you are today. Thus, it may help for you to determine whether tax breaks now or tax breaks later in life will be more important.

It’s worth checking into

Even if you are unsure about your future tax rates, a Roth 401(k) might still be to your benefit. It may be worthwhile to consult a financial planning professional who will work through a variety of hypothetical scenarios with a computer to help you make an informed decision.