---
title: Roth 401(k) — what it means and why it matters | Allocate AI
description: A version of the 401(k) where contributions are taxed now and every dollar, including growth, comes out tax-free in retirement.
canonical: https://allocateai.io/glossary/roth-401k
site: Allocate AI — https://allocateai.io
---

# Roth 401(k)

A version of the 401(k) where contributions are taxed now and every dollar, including growth, comes out tax-free in retirement.

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.

[Try the Mega Backdoor vs. Traditional 401(k) →](https://allocateai.io/calculators/mega-backdoor-growth)

## Related terms

- [401(k)](https://allocateai.io/glossary/401k) — An employer-sponsored retirement account you fund from your paycheck, with tax advantages and a yearly contribution limit of $24,500 (2026).
- [Traditional vs Roth](https://allocateai.io/glossary/traditional-vs-roth) — The choice between paying tax on retirement savings later (traditional) or now (Roth); it usually comes down to your tax rate today versus in retirement.
- [Mega backdoor Roth](https://allocateai.io/glossary/mega-backdoor-roth) — A strategy for putting far more than the normal limit into Roth savings by making after-tax 401(k) contributions and converting them to Roth.
- [RMD (required minimum distribution)](https://allocateai.io/glossary/rmd) — The minimum amount you must withdraw from traditional retirement accounts each year once you reach age 73, whether you need the money or not.

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Allocate AI is a budgeting and financial-planning app: link your accounts, say what you want in plain words, and it writes the plan and stages every change for your approval. Read more at https://allocateai.io or see all pages in https://allocateai.io/llms.txt.