The most significant difference is the tax treatment of contributions and withdrawals. With a traditional 401(k), employee contributions go into the plan pre-tax and any distributions at retirement are considered taxable income. For the Roth 401(k) the reverse is true as contributions are made on an after-tax basis and the distributions are made free of any federal income tax.
No. The contribution limit for 2026 is $24,500, with an additional $8,000 catch-up contribution available to individuals age 50 and older. Individuals ages 60 through 63 may qualify for a higher catch-up contribution of $11,250. The total contribution amount of $24,500 (or $32,500 for those age 50 and older, or $35,750 for those ages 60 through 63) can be allocated between the two types of plans, provided the combined contributions do not exceed the applicable annual limit.
Generally, once contributions have been designated to the traditional 401(k), assets cannot be transferred to the Roth 401(k) account. However, certain companies provide an in-plan Roth conversion option.
While employees can choose to allocate their contributions to either type of plan, any employer match must be done on a pre-tax basis. For that reason all employer match contributions would be made into the participants traditional 401(k) account.
Generally, the assets must remain in the account for 5 years. In addition, the employee must be at least 59½ to take withdrawals tax-free.
It depends on the current and future tax rate for the participants. If your tax rate in retirement will be the same as your current tax rate, then both plans will produce the same amount of after-tax income. If your tax rate will be lower in retirement, then the traditional plan would be better. If your tax rate in retirement will be higher, then the Roth 401(k) makes more sense.
Keep in mind that whatever tax rate prevails at retirement, you would still be receiving tax-free income from a Roth 401(k). This fact alone could make a significant difference in your total taxable income, which in turn will determine your tax bracket. In addition, tax-free income payments from your Roth 401(k) will have no impact on the taxability of Social Security benefits.
While there are no RMD rules governing Roth IRA distributions during the account owner's lifetime, the same is now true for Roth 401(k) assets. Beginning in 2024, Roth 401(k) accounts are no longer subject to required minimum distributions (RMDs) during the account owner's lifetime. Traditional 401(k) accounts remain subject to RMD rules, generally requiring distributions beginning at age 73 or 75, depending on your year of birth. Certain exceptions may apply.
The guidelines governing these plans are part of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The EGTRRA provisions were scheduled to end after 2010. However, the Roth 401(k) provision was made permanent under the Pension Protection Act of 2006.
An employee’s Roth and Traditional 401(k) account balances would be combined for purposes of applying the plan loan rules. Those rules allow for a loan of 50% of the vested account balance with a $50,000 limit.
Yes. Some participants are prevented from making contributions to a Roth IRA because their Modified Adjusted Gross Income (MAGI) exceeds certain levels. The Roth 401(k) does not carry any income level requirements. Everyone who participates in a plan that offers a Roth 401(k) as an option can make use of the Roth 401(k) provision.
Any distributions, or allowable rollovers, would be considered free of any federal income tax. This does not include any liability that may be incurred for applicable estate taxes.
Mainstay Capital Management, LLC
has been ranked by Barron's as one of the "Top 100 Independent Financial Advisors" in the country for the past eighteen years.
Ranking Disclosure
David Kudla, CEO
Mainstay Capital Management
Rings the Closing Bell at the
NYSE on January 2, 2020
Mainstay Capital Management, LLC
was selected as the winner of the Trailblazer IMPACT Award on November 15, 2017. This award recognizes a firm for their entrepreneurial spirit and drive to advance the industry’s interests.
Ranking Disclosure
David Kudla, CEO
Mainstay Capital Management
Rings the Closing Bell at the
Nasdaq on March 29, 2017
Important Consumer Disclosures
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Disclosure Information - Rankings and Awards
Barron's Magazine - Top 100 Independent Financial Advisors
According to Barron’s: The rankings are based on data provided by individual advisors and their firms. Advisor data is confirmed via regulatory databases, cross‐checks with securities firms and conversations with individual advisors. The formula Barron’s uses to rank advisors is proprietary. It has three major components: assets managed, revenue produced and quality of practice. Investment returns are not a component of the rankings because an advisor’s returns are dictated largely by the risk tolerance of clients. The quality of practice component includes an evaluation of each advisor’s regulatory record. The data is based on one fiscal year (7/1/25 - 6/30/26) and appeared in Barron’s on 9/11/26.
Schwab IMPACT Awards®
The Charles Schwab & Co., Inc.’s IMPACT Awards® program recognizes excellence in the business of independent financial advice. Nominees are evaluated and selected by a panel of prominent leaders from both the business world and the financial services industry. Mainstay Capital Management does use Charles Schwab to custody certain client assets, however there was no direct compensation provided to be nominated for this award. Mainstay Capital Management received this annual award on November 15, 2017.