Roth 401(k)s: What to Know Before You Contribute
More employers are offering Roth 401(k)s inside their plans, making these accounts more accessible than ever.
But just because your employer gives you the option doesn’t mean it’s automatically the right fit.
If you’re considering contributing to a Roth 401(k) in 2025, there are several key rules we recommend you understand before making your move.
From higher contribution limits to the removal of RMDs, the Roth 401(k) landscape has evolved.
Taking time now to understand how it works could pay off in retirement.
Let’s take a closer look at how the Roth 401(k) works, the changes that impact you in 2025, and what to consider before contributing this year.
How the Roth 401(k) Works
The Roth 401(k) is an employer-sponsored retirement account that lets you contribute after-tax dollars – unlike the traditional 401(k), which gives you a tax break up front.
That means you won’t reduce your taxable income this year by contributing to a Roth 401(k), but qualified withdrawals in retirement are tax-free.
This trade-off often makes the Roth 401(k) appealing for younger earners or anyone who expects to be in a higher tax bracket later in life.
You’ll pay taxes on contributions now, but your future withdrawals – including earnings – will grow and be accessed tax-free, assuming you meet the requirements.
To qualify for tax-free withdrawals, you must be at least 59½ years old and have held the account for at least 5 years.
If you withdraw earlier than that, you may owe income taxes and a 10% penalty on the earnings portion.
Your contributions, however, can be withdrawn tax-free since they were already taxed when deposited.
2025 Roth 401(k) Contribution Limits
In 2025, you can contribute up to $23,500 to a Roth 401(k) if you’re under age 50. Those 50 or older can take advantage of a $7,500 catch-up contribution, bringing their total to $31,000.
No RMDs with the Roth 401(k)
As of 2024, required minimum distributions (RMDs) are no longer required for Roth 401(k)s.
This change aligned Roth 401(k)s more closely with Roth IRAs, giving investors greater control over when – and if – they want to take withdrawals.
While you’ll still need to begin RMDs from traditional 401(k)s at age 73, Roth 401(k) assets can remain untouched, continuing to grow tax-free for as long as you like.
Roth Matching Contributions Are Now an Option
In the past, employer matching contributions always went into a traditional (pre-tax) 401(k) – even if your own contributions were going into a Roth 401(k).
But that’s changed.
If your plan supports it, you have the option to match into the Roth side of your 401(k).
This means your employer’s contributions can also grow tax-free and be withdrawn tax-free in retirement.
Not all plans have implemented this yet, but if yours does, it could mean a fully tax-free retirement portfolio – your contributions and your employer’s match included.
Early Withdrawal Rules of a Roth 401(k)
If you withdraw funds from a traditional 401(k) before you turn 59½, you could owe taxes plus a 10% penalty on the amount withdrawn.
With a Roth 401(k), there are no taxes or penalties on early withdrawal of your contributions as long as the account is at least 5 years old.
However, you may owe taxes and a penalty on earnings that are withdrawn before age 59½.
When a Roth 401(k) Makes Sense
One of the most common reasons savers choose a Roth 401(k) is the expectation that taxes will be higher in the future – either because of rising income or changes to tax laws.
If you’re early in your career and your income is lower today than it will be in retirement, contributing after-tax dollars now and locking in tax-free withdrawals later might be a smart move.
That same logic can apply if you’re mid-career and expect income or tax rates to rise by the time you retire.
Even if you’re already in a high bracket, using a Roth may help smooth your tax burden in retirement and give you more control over your taxable income.
Final Thoughts
With higher contribution limits, no income restrictions, and the ability to enjoy tax-free retirement income, the Roth 401(k)s is one of the most powerful retirement tools available.
But just because your employer offers it doesn’t mean it’s the right choice for everyone.
Take the time to consider your current tax situation, where you expect to be in the future, and whether a Roth 401(k) fits your overall retirement plan.
If you’re not sure which direction to go, seek help from a professional advisor and tax accountant.
