A Roth option is now almost universally offered by 401(k) plans, according to the Plan Sponsor Council of America’s 68th annual survey, which covers the 2024 plan year. If you participate in your employer’s 401(k) and have access to this opportunity, don’t sell it short. Roth contributions can provide significant benefits. And if you’re age 50 or older and want to max out your contributions, a Roth 401(k) account might be your only option for part of them.

Let’s explore the details.

Taxable Income Trade-off

Under a traditional 401(k), you make annual elective salary deferrals on a pretax basis, which reduces your taxable income for the year. Earnings in the traditional account grow tax-deferred, and withdrawals are subject to federal income tax. However, as mentioned, most 401(k) plans now offer a Roth option under which you can direct some of your elective salary deferrals into a designated Roth account within your 401(k).

Roth 401(k) contributions are made on an after-tax basis, so they don’t reduce your taxable income. The trade-off is that earnings in your Roth account accumulate federal-income-tax-free, and you can eventually take tax-free qualified withdrawals from the account.

Generally, a qualified withdrawal means one taken after your Roth 401(k) account has been open for more than five years and you’re age 59½ or older. Qualified withdrawals can also include amounts withdrawn:

1. After the account owner becomes disabled or
2. By a beneficiary after the original account owner dies.

Another advantage of Roth accounts is that they aren’t subject to the required minimum distribution (RMD) rules during the original account owner’s lifetime. These rules generally require you to start drawing down tax-deferred retirement accounts, such as 401(k)s and traditional IRAs, after reaching age 73. (Beneficiaries of inherited accounts usually will be required to take distributions, however.)

Contribution Limits

There are no income limits on your ability to make annual elective salary deferrals to a Roth 401(k) account. However, in 2026, there’s a $24,500 limit on elective deferrals, which includes contributions to both traditional and Roth 401(k) accounts.

Your employer can make matching contributions to your Roth account as long as its 401(k) plan specifically permits it to do so. Such contributions don’t count toward the $24,500 limit. However, they do count toward the plan’s overall annual contribution limit, which is generally $72,000 in 2026 (not counting catch-up contributions).

Catch-Up Contributions

Eligible employees age 50 or older can make additional catch-up contributions to their employer-sponsored 401(k)s. The standard maximum catch-up contribution for 2026 is $8,000. However, if you’re age 60, 61, 62, or 63 on December 31, 2026, you can make a “super” catch-up contribution of up to $11,250. These limits apply to both traditional and Roth 401(k) accounts combined. (Note: For you to make catch-up or super catch-up contributions, your employer’s plan must explicitly permit that type of contribution.)

The advantage of making catch-up contributions to your traditional 401(k) account is that they reduce your taxable income even further. On the other hand, the advantage of making Roth 401(k) account catch-up contributions is that you (or your heirs) will eventually be able to withdraw funds tax-free, and the earnings will never be subject to federal income tax (assuming only qualified withdrawals are taken). It’s important to carefully consider the respective advantages of each result.

Important: Beginning in 2026, certain higher-income taxpayers may make 401(k) catch-up contributions only to Roth accounts. This requirement applies to employees whose 2025 wages from the employer sponsoring the plan exceeded $150,000. (This amount will be annually indexed for inflation.) So, if you earn more than the applicable limit and your employer’s plan doesn’t offer a Roth option, you can’t make catch-up contributions.

In-Plan Rollovers

Your employer’s 401(k) plan may allow you to transfer funds from your traditional account into your Roth account. Such “in-plan” rollovers can be a relatively quick way to move more savings into the Roth side of your 401(k), and they don’t count toward your annual contribution limit. However, the rollover amount is generally taxable at your ordinary income rate to the extent it consists of pretax funds.

Roth IRAs vs. Roth 401(k) Accounts

You’re probably aware of the other major type of Roth retirement savings option available: the Roth IRA. How does it differ from a Roth 401(k) account? And how might it factor into your Roth 401(k) contribution decision? There are a few considerations.

First, your ability to make an annual Roth IRA contribution begins to phase out once your adjusted gross income (AGI) exceeds $153,000 if you’re a single or head-of-household filer, or $242,000 if you’re married and file jointly. Your ability to contribute is completely phased out once AGI reaches $168,000 ($252,000 for joint filers). So, if you’re subject to the complete phaseout, your Roth 401(k) will be your only Roth contribution option.

Second, even if you’re fully eligible to make Roth IRA contributions this year, the limit is much lower than that for Roth 401(k) accounts. The maximum Roth IRA contribution (on a combined basis with traditional IRAs) for 2026 is $7,500, or $8,600 if you’ll be 50 or older at year’s end.

Therefore, if your budget allows, you could contribute to a Roth IRA and make elective salary deferrals to the Roth 401(k) account within your employer’s plan. Assuming you’re unaffected by the AGI limits, you could, in 2026, contribute a combined total of:

• Up to $32,000 if you’ll be younger than 50 at year’s end ($7,500 to your Roth IRA plus $24,500 to your Roth 401(k) account),
• Up to $41,100 if you’ll be 50 or older at year’s end ($8,600 to your Roth IRA plus $24,500 and an $8,000 catch-up contribution to your Roth 401(k) account), or
• Up to $44,350 if you’ll be age 60 through 63 at year’s end ($8,600 to your Roth IRA plus $24,500 and an $11,250 super catch-up contribution to your Roth 401(k) account).

As you can see, those are significantly higher amounts than either option alone.

When Roth Contributions May Make Sense

Contributions to a Roth account — whether it’s within a 401(k) or an IRA — can save tax in the long run if you expect to be in a higher income tax bracket when you’re making withdrawals in retirement than you’re in now. Even if you expect to be in the same or a lower bracket, having some of your retirement funds in Roth accounts can provide a hedge against possible income tax rate hikes in the future.

If you don’t expect to need all of your retirement savings to fund your retirement expenses, Roth accounts can be a great way to build up tax-advantaged funds for your heirs. Because you won’t be required to take distributions during your lifetime, the entire balance can grow tax-free for their benefit. And your heirs won’t have to pay taxes on Roth account distributions as they do on most traditional account distributions.

Worth a Hard Look

If your employer’s 401(k) plan offers a Roth option, give it a hard look. It’s particularly worth considering if your income is too high to contribute to a Roth IRA. For more information or answers to any questions about saving for retirement, contact your Isdaner tax advisor.