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

Both traditional and Roth 401(k) and 403(b)s offer tax advantages. Use this side-by-side comparison of the important features of traditional and Roth accounts to understand your options.

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.

Contribution limits

Traditional 401(k)/403(b)    

Roth 401(k)/403(b)

The maximum contribution in 2025 is $23,500.  Participants ages 50–59 or age 64+ at the end of the calendar year can make additional catch-up contributions of $7,500. Participants ages 60–63 at the end of the calendar year may be able to contribute a higher catch-up amount up to $11,250.  However, plans may set lower limits. 

Same as traditional. The limits apply to all contributions combined, whether traditional, Roth or both.

Employer matching contributions

Traditional 401(k)/403(b)    

Roth 401(k)/403(b)

Employer matching contributions are allowed if offered by the plan. Matching contributions are not included in income when made to the plan and are taxable when withdrawn.

Same as traditional.

Distributions (withdrawals)

Traditional 401(k)/403(b)    

Roth 401(k)/403(b)

Distributions are taxable as ordinary income.

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

If your 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 five years before and one of the following conditions applies:

  • the participant is 59½ years old or older

  • the participant is disabled

  • the distribution is to a beneficiary of a participant who has died

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

Required minimum distributions (RMDs)

Traditional 401(k)/403(b)    

Roth 401(k)/403(b)

Generally, you must take required minimum distributions (RMDs) beginning at age 73 or at retirement, whichever is later. If you own more than 5% of the business sponsoring the plan, you must take RMDs at age 73, whether or not you are retired. 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

Traditional 401(k)/403(b)    

Roth 401(k)/403(b)

Plans may allow loans and hardship withdrawals.

Same as traditional.

Effects on taxable income

Traditional 401(k)/403(b)    

Roth 401(k)/403(b)

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

Traditional 401(k)/403(b)    

Roth 401(k)/403(b)

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.

If you’re trying to decide which option to use, find out why tax rates could be the key.

Read your employer’s summary plan description for details specific to your plan, such as contribution limits and employer matches. You should consult a financial professional or tax advisor to find out more about your options.

Traditional vs. Roth 401(k)/403(b) analyzer

Use our Roth comparison calculator to see which contribution option might make sense for you.

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