A Roth 401(k) is a good option for workers who have access to one through their employer and expect to be in a higher tax bracket when they retire. As an added bonus, the contribution limit for 2025 has increased.
2024 Roth 401(k) contribution limits
The maximum amount you can contribute to a Roth 401(k) for 2024 is $23,000 (if you're younger than age 50). This is an extra $500 over 2023.
If you're age 50 and older, you can add an extra $7,500 per year in "catch-up" contributions, bringing the total amount to $30,500. Contributions generally need to be made by the end of the calendar year.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The Roth 401(k) first became available in 2006, and many companies now offer this option to workers. The Roth 401(k), as the name implies, combines features of the tax-friendly Roth IRA and the traditional 401(k).
2025 Roth 401(k) contribution limits
Starting in 2025, you can save up to $23,500 in your Roth 401(k). That's a $500 bump up from 2024. If you're 50 and older, the catch-up contribution limit will stay at $7,500 in 2025, which was what it was in 2024. Add that to the $23,500, and your total tops out at $31,000 in 2025.
However, thanks to the SECURE 2.0 Act, you may be getting an extra boost in 2025. If you're age 60, 61, 62, or 63, you'll get a higher catch-up contribution limit. So, instead of the $7,500, you may be able to set aside up to $11,250 in extra contributions in 2025.
If you and your employer both contribute to your Roth 401(k), the total contributions to the account max out at $70,000 in 2025, up from $69,000 in 2024.
A Roth 401(k) vs. a Roth IRA and a traditional 401(k)
As with a Roth IRA, you make after-tax contributions to a Roth 401(k). This won't lower your tax bill now, but it will provide you with income in retirement that is free from taxes. You can make withdrawals from a Roth 401(k) tax-free, and without incurring a 10% early-withdrawal penalty, once you've turned age 59 1/2 and have had the account open for at least five years. (If you retire after holding a Roth 401(k) for only two years, for example, the money must sit for three more years to be fully tax-free, even if you own an older Roth 401(k) account from a previous employer that meets the five-year test).
And as with a traditional 401(k), there are no income limitations with the Roth 401(k), making it an attractive option for high-earners whose salaries might disqualify them from contributing to a Roth IRA.
You can also sock away thousands of dollars more each year with a Roth 401(k) or a traditional 401(k) than you can with an IRA alone.
The annual contribution limit for a Roth IRA for those under 50 is $7,000 for 2024, with an additional $1,000 catch-up contribution if you're age 50 or older. Those numbers will stay the same in 2025.
You'll be obligated to take required minimum distributions from a traditional 401(k) and a Roth 401(k) once you reach age 73. However, you can avoid RMDs from a Roth 401(k) by rolling over the money into a Roth IRA, which doesn't require minimum distributions.
How much should you save in a Roth 401(k)?
Many employers match employees' 401(k) contributions up to a certain percentage of salary. Note that any employer contributions to a Roth 401(k) will be made pretax and will grow tax-deferred alongside your own Roth contributions. When you withdraw money, you will owe income tax on the employer match.
Experts recommend that workers save at least 15% of their income for retirement, including the employer match. For example, if your employer contributes, say, 2%, then you would need to save an additional 13%.
If you are currently saving below the recommended 15% annually, increase your contribution every year until you reach that goal. For instance, if you are contributing 5% this year, boost that to 7% next year and so on until you reach 15%.
Is a Roth 401(k) right for you?
Roth 401(k) plans can be beneficial to workers who don't expect their tax bracket to decrease during their retirement. This may include younger employees who anticipate their income increases as they age. If a worker’s earnings increase dramatically and their tax bracket is higher than it will be in retirement, then it could make sense to switch to pretax deferrals in a regular 401(k).
(Note: If you invest in both a Roth 401(k) and a traditional 401(k), the total amount of money you can contribute to both plans can't exceed the annual maximum for your age. If you do exceed it, the IRS might hit you with a 6% excessive-contribution penalty).
Roth 401(k) retirement savings tips
Advice for maximizing your Roth 401(k) account:
- Max out your contributions. For each year that you're able, aim to hit the $23,500 limit.
- Once you turn 50, add another $7,500 to that limit annually while you continue to work.
- If your employer offers to match your contributions up to a certain amount, be sure to invest at least that much in your Roth 401(k) each month. It's free money, after all.
Related Content
-
Why Vanguard Was Ordered to Pay a $106 Million Fine Related to Target-Date FundsVanguard's fine centers on December 2020 actions related to the asset manager's target-date funds and capital gains taxes. Here's what you need to know.
-
Nvidia Stock Up After President Trump Revokes Biden AI OrderNvidia stock is higher Tuesday after President Trump revoked a 2023 executive order targeting AI developers. Here's what we know.
-
Getting Divorced? Beware of Hidden Tax Traps as You Divide AssetsDividing assets fairly in a divorce means looking beyond their current values and asking whether they'll create tax liabilities — or tax breaks — in the future.
-
A Social Security Storm Is Gathering: Here's Your Safety PlanIf Social Security reserves are depleted by 2033, as predicted, future benefits could be cut by as much as 21%. Here’s how to weather the impending storm.
-
2025 Stocks Forecast: What Stock Pros Expect This YearThe jury's out on the 2025 stocks forecast: will investors enjoy higher interest rates that dampen the market, or another year of double-digit returns?
-
How to Avoid These 10 Retirement Planning MistakesMany retirement planning mistakes are easily avoidable. Here are 10 to have on your radar so you don't end up running out of money in your golden years.
-
Before the Next Time Markets Sink, Do Your Lifeboat DrillsAn eventual market crash is inevitable. We can't predict when, but preparing for the ups and downs of investing is imperative. Here's what to do.
-
This Late-in-Life Roth Conversion Opportunity Spares Your HeirsExpensive medical care in the later stages of life is an unpleasant reality for many, but it can open a window for a Roth conversion that benefits your heirs.
-
Converting Retirement Savings to a Roth IRA? Don't Do ThisYou might want to convert all of your savings to a Roth in one go, but you could end up paying hundreds of thousands more in taxes than you have to.
-
What Is Your 'Enough Is Enough' Number for Retirement?Chasing a 'magic number' for retirement can be anxiety-inducing. Instead, build your plans around a personal number that reflects your individual circumstances.
