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What Is A Roth 401(k)? Essential Guide 2024

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updated: January 14, 2024

A Roth 401(k), a designated Roth account, is a separate account funded with after-tax dollars within an employer-sponsored retirement savings plan. Since you’ve already paid taxes on this money, you can withdraw it—and any earnings—tax-free when you retire. With a traditional 401(k), you defer taxes up front and pay them when you take the money out. About 88% of 401(k) plans allow employees to utilize designated Roth 401(k) accounts.



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How Roth 401(k)s work

The name 401(k) refers to a section of the Internal Revenue Service (IRS) tax code that permits employer-sponsored retirement accounts. One of these accounts is the Roth 401(k), where employees pay taxes upfront and withdraw savings plus earnings tax-free when they retire.

When you sign up for your company’s 401(k) plan, you agree to automatic payroll deductions that can go into your designated Roth account after withdrawing taxes but before you receive the money. Your employer may even match some or all of your contributions.

Beginning in 2025, employers with new 401(k) and 403(b) retirement plans will be required to automatically enroll eligible employees due to a provision of the SECURE 2.0 Act, designed to increase employee participation. You may opt out of the plan if you wish, and existing 401(k) and 403(b) plans are exempt from automatic enrollment.

With a 401(k) plan, you invest your contributions in stocks, bonds, and other types of assets according to the plan rules. You enjoy tax-free growth in any designated Roth account during this investment period. That, plus the fact you already paid taxes on your contributions, means you will pay no taxes when you take the money out in retirement.

Who is the Roth 401(k) best for?

Because you contribute after-tax dollars to a Roth 401(k), this plan may work to your advantage if your current tax bracket is low and you expect it to be higher when you retire. 

With a traditional 401(k) account, if you withdraw funds before you turn 59½, you will likely owe taxes plus a 10% penalty on the amount withdrawn. With a Roth 401(k), there are no taxes or penalties on early withdrawal of funds you contributed as long as the account is at least five years old. You may owe taxes and a penalty on earnings that are withdrawn before age 59½.

Roth 401(k) contribution limits

The IRS imposes an annual limit on the amount of money you can contribute by elective deferral to all of your 401(k) accounts. For 2024 the limit is $23,000. An additional catch-up limit of $7,500 applies to individuals age 50 or older, making the overall elective deferral contribution limit $30,500 for those who qualify.

The total of all contributions to your 401(k) plans for 2024, including additional after-tax contributions you make, if your plan allows them, and employer matching, cannot exceed $69,000 or your salary, whichever is lower ($76,500 if you are 50 or older). 

For example, if you contribute $23,000, your employer could match your contribution plus an additional $23,000 ($30,500 if 50 or older) if your plan allows it. Or you could make up to $23,000 ($30,500) in additional after-tax contributions, after your employer match, depending on plan rules. These limits apply to the total of all 401(k) plans you have including any designated Roth account with the same employer. The table below shows all limits that apply for 2024.

Under previous law, employer matching and other contributions had to be on a pre-tax basis. As of Dec. 30, 2022, under the SECURE 2.0 Act, employer contributions can be after-tax if the plan allows it.

401(k)/Roth 401(k) contribution limits 2024Under age 5050 or older w/$7,500 catch-up
Individual elective deferral
Individual after-tax
No more than can reach a $69,000 total from all amounts
No more than can reach $76,500 total
Employer contributions
No more than can reach a $69,000 total from all amounts
No more than can reach $76,500 total
Total must not exceed

Roth 401(k) withdrawal rules 

There are three types of distributions (withdrawals) from a Roth 401(k) account—qualified, hardship, and non-qualified—each with its own rules.

Qualified distribution

  • Account must be at least five years old, and
  • You must have reached the age of 59½ or older.

Since you must meet both requirements for a qualified distribution, if you began contributing to your Roth 401(k) at age 57, you couldn’t take a qualified distribution until age 62. However, if you roll over your Roth 401(k) into a Roth IRA that is at least five years old, you will have met the five-year rule requirement and can begin withdrawals immediately upon retirement.

Hardship distribution

  • Your plan must permit a hardship distribution, and
  • The account must be at least five years old.

Depending on your plan, some of the situations that typically result in a hardship distribution include:

  • Disability or death of the plan owner.
  • Medical expenses that exceed 10% of the plan owner’s adjusted gross income (AGI).
  • Active duty deployment of a member of a military reserve unit.
  • Departure from employment at age 55 or older.
  • Purchase or repair of a principal residence.
  • Prevention of foreclosure or eviction from principal residence.
  • College tuition for an immediate family member.
  • Funeral or burial expenses.

Non-qualified distribution

If your withdrawal doesn’t meet the requirements listed above, it is non-qualified and subject to payment of taxes and a 10% penalty on earnings. Recall that you already paid taxes on your contributions, so you may withdraw them anytime tax-free.

However, the IRS prorates withdrawals from a Roth 401(k) between contributions and earnings based on the ratio of both in your account. For example, suppose you had $20,000 in your Roth 401(k) account, of which $16,000 was contributions and $4,000 was earnings.

The ratio of earnings to contributions is $4,000/$16,000 or 4/16 or one to 4 (25%). If you made a $10,000 non-qualified withdrawal from your account, you would pay taxes and a 10% penalty on 25% or $2,500.

Roth 401(k): Pros and cons

There are advantages and disadvantages to putting money in a designated Roth account. Some of the most important ones are listed below.

Higher contribution limit than IRA
No taxable income reduction
Employer matching
Five-year rule
Tax-free withdrawals
Possible high fees
Can roll over funds to Roth IRA with no tax implications
Fewer investment choices
No income limit to participate


Traditional and Roth 401(k) plans have a higher annual contribution limit ($23,000 for 2024) than IRAs ($7,000 for 2024). The same applies to catch-up limits for those age 50 and higher. 401(k) plans have a $7,500 catch-up limit, while IRAs permit just $1,000 in additional contributions.

Employer matching is perhaps the biggest advantage 401(k) plans have over other retirement savings options. With a Roth 401(k), your employer can match your contributions dollar for dollar, up to $23,000 for 2024. Technically, your employer could contribute much more than that—up to $69,000 ($76,500 if you are 50 or older) minus your contribution.

Because you pay taxes on your Roth contributions, your withdrawals are tax-free. If your tax rate in retirement is higher than it is now, this could be a big advantage. You also won’t owe taxes on any of the money your contributions earned while in the account.

Retirement accounts are typically subject to required minimum distributions (RMDs) after a certain age. Important: Beginning on Jan. 1, 2024, holders of Roth 401(k) plans will no longer be required to take RMDs per SECURE Act 2.0. (Previously, RMDs were required and the only way to avoid RMDs with a Roth 401(k) was to roll over your account into a Roth IRA, which has never been subject to RMDs in the account holder’s lifetime.)

There is no income limit for your participation in a Roth 401(k), unlike there is with a Roth IRA. This should not be confused with contribution limits imposed on so-called highly compensated employees (HCEs). Employees who make $155,000 or more in 2024 may be classified as HCEs and the amount of their Roth 401(k) contribution limited.


With a Roth 401(k) your taxable income is not reduced in the year you make your contribution. This is because your contribution goes in after you’ve paid taxes on the money. 

You cannot withdraw funds from your account until at least five years after your first contribution without paying a penalty.

Both traditional and Roth 401(k) plans are established by your employer with an investment firm. They typically charge high fees, some as high as 2%, and come with fewer investment options than other types of investment accounts. It’s important to understand the disadvantages of a Roth 401(k) before enrolling in one. 

Comparing Roth 401(k)s to other retirement accounts 

Roth 401(k) vs. 401(k)

The primary difference between a Roth 401(k) and a traditional 401(k) is when you pay taxes on the funds in your account. With a Roth 401(k), your contributions, and those of your employer if allowed, go in after taxes. You gain no tax advantage on the front end but enjoy tax-free withdrawals of contributions and earnings upon retirement.

Other elements—including no income limits to participate, maximum contribution, and required minimum distributions—are the same between the two types of retirement savings plans. Again,  beginning Jan. 1, 2024, Roth 401(k) plans will no longer be subject to RMDs while traditional 401(k)s will continue to require them (except from the plan at the employer where you currently work).

Roth 401(k) vs. Roth IRA

The distinctions between a Roth 401(k) and Roth IRA are more subtle since both involve after-tax contributions. First, there is no income limit for participation in a Roth 401(k). No matter how much money you make, you can contribute to a Roth 401(k) provided your employer offers one. Roth IRAs restrict participation to single taxpayers making $161,000 or less ($240,000 if married filing jointly) for 2024.

Roth IRAs also restrict your contribution to $7,000 ($8,000 if 50 or older). A Roth 401(k) lets you contribute at least $23,000 ($30,500) in 2024, with a maximum contribution limit of $69,000 ($76,500) from all sources including employer matching and after-tax contributions if allowed.

Roth IRAs are not subject to RMDs. Until Dec. 31, 2023, Roth 401(k) plans did mandate them. But as of Jan. 1, 2024, that difference disappeared, thanks to a provision of the SECURE Act 2.0.

What are Roth 401(k) RMDs and what do you need to be aware of?

RMDs apply to most retirement savings plans and reflect the government’s desire to ensure you eventually pay taxes on tax-deferred savings. Since funds in a Roth 401(k) are not subject to taxes, the fact these plans are subject to RMDs doesn’t make much sense. Passage of the SECURE ACT 2.0 in 2022 fixed this problem—but not until Jan. 1, 2024, when Roth 401(k) plans will be exempt from RMDs.

Meanwhile, here’s what you need to know:

  • No matter your age, you can delay taking an RMD from your Roth 401(k) until the year you retire unless you are a 5% owner of the company that houses your plan.
  • You must withdraw at least the minimum amount but can withdraw more. However, the excess does not carry forward to a future year.
  • You must still take an RMD for tax year 2023, including one with a required beginning date of April 1, 2024. (If, for example, you delayed RMDs for retirement.)
  • If you were born in 1950 or earlier, you had to begin taking RMDs at age 72 (2022 or earlier).
  • Beginning Jan. 1, 2024, Roth 401(k) accounts will no longer be subject to RMDs.

How can you start a Roth 401(k)?

You can only start a Roth 401(k) retirement savings plan if your employer plan allows them. Begin by asking that question at your company’s HR office. If the answer is “yes,” proceed as follows:

  • Sign up. Although automatic enrollment in new company 401(k) plans will start in 2025, most companies do not currently have auto-enrollment; even if yours does, you will likely have to enroll in any Roth component.
  • Choose account types. You will likely have the option to choose a traditional 401(k), a Roth 401(k), or both. Consider the tax implications and differences between the two types of plans before choosing. The specifics of your plan will help you decide.
  • Choose your investments. Your Roth 401(k) plan will include several different investment options. You will select the amount (or percent) of your salary and how to invest it. It’s always wise to seek financial advice before selecting specific investment options. Some financial advisors, such as Empower, offer a combination of digital and personal guidance that works well for many people.

Starting a new Roth 401(k) is a good time to make sure you haven’t left money (in the form of previous 401(k) accounts) on the table from past jobs. Beagle Financial Services, specializes in finding old 401(k) accounts, helping consumers navigate fees, and roll over funds to save on taxes.

TIME Stamp: Consider options carefully

Access to a designated Roth 401(k) account is one of many tools you may employ as you work to build a retirement nest egg. Traditional thinking about the value of receiving a tax deferral now versus later is evolving, especially for those who anticipate a higher tax bracket in retirement than now.

If saving in a Roth 401(k) is an option, study your plan rules, seek advice from a trusted financial advisor, and decide if it makes sense. Many people elect to invest both pre-tax and post-tax money in their retirement accounts in order to have the best of both worlds.

Frequently asked questions (FAQs)

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

Whether you can contribute to both a 401(k) and Roth 401(k) depends on the rules of your employer’s 401(k) plan. Many now include a Roth 401(k) option and most of those let you invest in both types of accounts. Your employer can even match your contributions in both accounts if your plan allows it.

Can you take a loan from your Roth 401(k)?

Depending on your plan rules, you may be able to borrow from your Roth 401(k) account. Loans can be for up to $10,000 (or 50% of your account balance, whichever is greater). You typically have five years to repay the loan without penalty.

What is an employee Roth 401(k) deferral?

When an employee elects to defer part of their pay after taxes, this is known as a Roth 401(k) deferral. It means that although you are deferring part of your pay, you will not receive a tax deduction. By paying taxes up front, however, your deferral will grow tax-free until you withdraw it and all earnings in retirement.

Empower Personal Wealth, LLC (“EPW”) compensates Time Stamped for new leads. Time Stamped is not an investment client of Empower Advisory Group, LLC.

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