Comparing traditional and Roth 401(k)/403(b) contributions

Use this side-by-side comparison of the important features of traditional and Roth accounts to understand your options.

Both traditional and Roth 401(k) and 403(b)s offer tax advantages. Use this table to help determine which one better suits your needs.

 

Traditional 401(k)/403(b)

Roth 401(k)/403(b)

Federal income tax treatment

Contributions and earnings are taxable when withdrawn.

Qualified distributions are tax- and penalty-free. (See Distributions below for more details.)

Contribution limits

In 2025, the maximum contribution is $23,500, or $31,000 for participants aged 50 to 59. For participants aged 60 to 63, the maximum contribution limit in 2025 is $34,750. However, plans may set lower limits. The limits apply to all contributions combined, whether traditional, Roth or both.

Same as traditional.

Employer matching contributions

Employer matching contributions are allowed if offered by the plan.

Same as traditional.

Distributions (withdrawals)

Distributions are taxable as ordinary income.

A 10% early withdrawal penalty may apply on distributions made before you reach age 59½.

If employment is terminated in the year you turn age 55 or later, withdrawals may be penalty-free but are still taxable.

Qualified distributions are tax- and penalty-free if the first Roth contribution was made at least 5 years before and the participant:


  • is 59½ years old or older

  • is disabled, or

  • has died

For nonqualified distributions, earnings are taxable and may be subject to a 10% early withdrawal penalty.

Required minimum distributions (RMD)

Generally, you must take required minimum distributions beginning at age 73 or at retirement, whichever is later. Once withdrawals begin, RMDs must be taken each year.

Lifetime RMDs are not required from designated Roth accounts in a 401(k) or 403(b) plan. Distributions from employer Roth accounts are more in line with traditional (non-employer) Roth IRAs, which do not require distributions until after the death of the account owner.

 

 

 

 

 

Loans and hardship withdrawals

Plans may allow loans and hardship withdrawals.

Same as traditional.

Effects on taxable income

Taxable income is used in determining your tax bracket and eligibility for certain benefits, such as tax credits and financial aid.

Traditional contributions reduce your taxable income at the time of investment. However, distributions from traditional accounts are taxable as ordinary income.

Roth contributions do not reduce your taxable income at the time of investment. However, qualified Roth distributions are not taxable.

Options when employment ends

When leaving your employer, your account balance can be:

 

  • Cashed out. Taxes and penalties may apply.
     
  • Rolled into a traditional IRA.
     
  • Rolled into a Roth IRA. The rollover is taxable but is not subject to the early withdrawal penalty.
     
  • Rolled into a new employer’s plan, if the plan accepts rollovers.
     
  • Left in your previous employer’s plan, as long as the vested balance stays above the required minimum ($7,000 or less, depending on the plan).

When leaving your employer, your account balance can be:

 

  • Cashed out. Taxes on earnings and penalties may apply for nonqualified distributions.
     
  • Rolled into a Roth IRA.
     
  • Rolled into a new employer’s plan, if the plan accepts rollovers and Roth contributions
     
  • Left in your previous employer’s plan, as long as the balance stays above the minimum required by the plan.

 

Employers with 401(k) or 403(b) plans aren’t required to offer Roth accounts, so check with your benefits department to find out if the Roth option is offered by your plan. For details specific to your plan, such as contribution limits and employer matches, read your employer’s summary plan description. You should consult a financial professional or tax advisor to find out more about your options.

Other Resources

Roth IRAs

Traditional IRAs

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