A Roth 401(k) is the after-tax flavor of a workplace retirement plan. Contributions come out of your paycheck after income tax has been withheld, so there is no deduction today. In exchange, qualified withdrawals in retirement, contributions and all the growth, are completely tax-free. The contribution limit is shared with the traditional 401(k): $24,500 combined in 2026, plus catch-up amounts for those 50 and older.
Compare the two on a $10,000 contribution for someone in the 24% bracket. Traditional: the full $10,000 goes in, and the paycheck shrinks by $7,600. Roth: $10,000 goes in and the paycheck shrinks by $10,000. Thirty years later at 7% growth, either account holds about $76,000. The traditional balance is taxed on withdrawal; the Roth balance is not. Which wins depends entirely on whether your tax rate in retirement is higher or lower than 24% today.
Roth 401(k)s have two advantages over Roth IRAs: no income limit, so high earners can use them directly, and a much higher contribution cap. Since 2024 they are also no longer subject to required minimum distributions.
The common mistake is assuming Roth is always better because tax-free sounds better. Someone in the 35% bracket who expects to spend less in retirement likely does better with traditional. Many people split the two to hedge, and employer matches at most plans still land in the traditional side regardless.