If your employer offers a Roth 401(k) option, you may have a powerful tool to help diversify your retirement strategy. Like a traditional 401(k), it allows you to save for retirement through payroll contributions—but with a key difference in how your savings are taxed.

Whether you’re just getting started or rethinking your retirement mix, here’s what you need to know about Roth 401(k)s and how they work.

What Is a Roth 401(k)?

A Roth 401(k) is a feature within a standard 401(k) plan that allows you to make contributions with after-tax dollars. Unlike traditional 401(k) contributions—which reduce your taxable income now—Roth contributions are taxed upfront. The payoff? If your withdrawals are qualified, they’re completely tax-free, including any investment earnings.

Many 403(b) and 457(b) plans also allow Roth contributions, so it’s worth checking what your plan offers.

Who Can Contribute?

One major perk: There are no income limits for Roth 401(k) contributions. Unlike Roth IRAs, which phase out eligibility at higher income levels, anyone eligible to participate in their employer’s 401(k) can choose the Roth option—regardless of salary.

Some plans require you to work for a certain period (up to a year) before contributing, but many allow you to start right away.

How Much Can You Contribute?

For 2025, the total employee contribution limit to a 401(k)—Roth, traditional, or a mix—is $23,000, with an additional $7,500 catch-up contribution if you’re age 50 or older. That means those 50+ can contribute up to $30,500 in total.

You can split your contributions however you like. For example, you might contribute $10,000 to Roth and $13,000 to traditional. Just be sure your total doesn’t exceed the annual limit across all 401(k), 403(b), SIMPLE, or SAR-SEP plans you contribute to during the year.

Can You Contribute to an IRA, Too?

Yes—participating in a 401(k) doesn’t prevent you from contributing to a traditional or Roth IRA. However, income limits may reduce or eliminate your ability to deduct traditional IRA contributions or contribute directly to a Roth IRA.

You can contribute up to $7,000 to an IRA in 2025 (or $8,000 if you’re 50 or older). A financial advisor can help you understand how these contributions work together within your broader strategy.

When Are Roth 401(k) Distributions Tax-Free?

Your contributions to a Roth 401(k) are always tax-free when withdrawn. But to withdraw your earnings tax-free, you must meet the rules for a qualified distribution:

• The withdrawal must occur at least five years after your first Roth 401(k) contribution, and
• You must be age 59½, disabled, or deceased at the time of distribution.

Each Roth 401(k) plan has its own five-year clock. If you roll over your balance to a new employer’s plan, that plan may start a new five-year period—unless the new plan allows you to carry over the original start date.

Non-qualified withdrawals of earnings may be taxed and penalized unless you meet an exception or roll the amount into a Roth IRA or another qualified Roth account.

What About Employer Contributions?

Your employer may match your Roth contributions—but their match is made on a pretax basis. That means employer contributions and their earnings are taxable when you withdraw them, regardless of whether you contribute Roth or traditional dollars.

Vesting schedules vary, but many plans require several years of service before you fully own employer matching contributions. Make sure you understand your plan’s rules so you don’t leave unvested money behind if you change jobs.

Should You Choose Roth or Pretax Contributions?

This decision depends on your current tax bracket, your expected tax rate in retirement, and your overall financial strategy.

• Roth contributions may be better if you expect to be in a higher tax bracket in retirement or want tax-free income later.
• Pretax contributions may make sense if you’re currently in a higher tax bracket and want to reduce your taxable income now.

In many cases, a blended approach makes sense. You can contribute to both types, giving you more flexibility in retirement. A financial planner can help you run projections to compare scenarios and optimize your mix.

What Happens If You Leave Your Job?

When you leave your employer, you generally have several options for your Roth 401(k) balance:

• Leave it in the current plan (if allowed)
• Roll it over to a Roth IRA (preserving tax-free growth and avoiding required minimum distributions)
• Roll it over to another employer’s Roth 401(k) plan (if the plan accepts Roth rollovers)
• Take a distribution (which may be taxable on earnings if not qualified)

If your total vested balance is under $5,000, the plan may automatically cash you out or roll the funds into an IRA on your behalf.

Other Roth 401(k) Basics to Know

• Hardship withdrawals and loans may be available from your Roth 401(k), depending on your plan, but they come with strict rules and potential penalties.
• Required minimum distributions (RMDs) apply to Roth 401(k) plans, typically starting at age 73 (or 75, depending on your birth year), unless you roll your balance into a Roth IRA, which does not require RMDs during your lifetime.
• Roth 401(k) funds are generally protected from creditors under federal law, adding an extra layer of security to your retirement savings.

The Bottom Line

A Roth 401(k) can be a powerful addition to your retirement toolkit, especially if you want to create tax diversification and more flexibility later in life. Whether Roth contributions make sense for you depends on your income, tax outlook, retirement timeline, and personal goals.

At Navalign Wealth Partners, we’re here to help you understand your options, weigh the pros and cons, and build a strategy that aligns with your financial future. Let’s talk about how your 401(k) fits into your overall plan.