facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog external search brokercheck brokercheck Play Pause
Should I Contribute to My Roth 401(k)? What Changed in 2026 and How to Decide Thumbnail

Should I Contribute to My Roth 401(k)? What Changed in 2026 and How to Decide

One of the questions I receive most often is:

"Should I contribute to my traditional 401(k) or my Roth 401(k)?"

The answer isn't as simple as "Roth is better" or "Always take the tax deduction."

The right choice depends on your current tax situation, your expected income in retirement, your long-term goals, and now—beginning in 2026—whether you're required to make catch-up contributions as Roth contributions under the SECURE 2.0 Act.

Before we dive in, here's a decision tree that summarizes many of the considerations we walk through with clients.

Should I Contribute To My Roth 401(k)

While this chart is a great starting point, every person's tax situation is unique. Let's look at the factors that often drive the decision.

Traditional vs. Roth 401(k): What's the Difference?

The biggest difference is when you pay taxes.

Traditional 401(k)

Traditional contributions reduce your taxable income today.

You receive an immediate tax deduction, your investments grow tax deferred, and you'll generally pay ordinary income tax when the money is withdrawn during retirement.

For someone in a high tax bracket today who expects substantially lower income later, this can be an excellent strategy.

Traditional contributions may also reduce your Adjusted Gross Income (AGI), potentially helping with tax credits, Medicare premiums, or other income-based thresholds.

Roth 401(k)

Roth contributions are made with after-tax dollars.

You don't receive a tax deduction today, but qualified withdrawals—including decades of investment growth—are completely tax free.

Since SECURE 2.0 eliminated lifetime Required Minimum Distributions (RMDs) for Roth 401(k)s beginning in 2024, these accounts have become even more attractive for many retirees and for those who hope to leave assets to heirs.

It's Not About Your Tax Bracket—It's About Your Lifetime Tax Picture

Many people compare today's marginal tax bracket with the tax bracket they think they'll be in after retirement.

That's a good starting point—but it's often too simplistic.

What really matters is your effective tax rate over your lifetime, not just your top marginal rate.

For example, someone may retire in the 24% tax bracket but actually pay an effective tax rate much lower because portions of their income are taxed at 10%, 12%, and 22%.

On the other hand, retirees with large IRAs, pensions, Social Security benefits, or substantial Required Minimum Distributions may discover their tax rates aren't nearly as low as they expected.

That's why we project taxes over decades—not just one year at a time.

A Client Story

Recently I worked with a client in her early 50s who assumed she should continue making traditional 401(k) contributions because she wanted the tax deduction.

After projecting her retirement income, however, we discovered she was likely to remain in nearly the same tax bracket throughout retirement due to a combination of pension income, Social Security, sizable retirement accounts, and future Required Minimum Distributions.

Rather than continuing to defer every possible dollar, she decided to begin directing new contributions toward her Roth 401(k). The goal wasn't to eliminate taxes—it was to create more flexibility later by building both tax-deferred and tax-free sources of retirement income.

That flexibility can make a tremendous difference when managing taxes throughout retirement.

When Roth Contributions Often Make Sense

A Roth 401(k) may be especially attractive if you:

  • Expect your tax rates to be similar or higher in retirement.
  • Are early in your career and currently in a relatively low tax bracket.
  • Already have substantial traditional retirement assets.
  • Want greater flexibility to manage taxes in retirement.
  • Intend to leave retirement assets to beneficiaries.
  • Believe future tax rates may increase.

One of the biggest advantages is tax diversification.

Having money in both traditional and Roth accounts allows you to choose where retirement income comes from each year, giving you much greater control over your taxable income.

That flexibility can help manage:

  • Medicare IRMAA surcharges
  • Taxation of Social Security benefits
  • Capital gains planning
  • Roth conversion opportunities
  • Required Minimum Distributions
  • Estate planning strategies

When Traditional Contributions May Still Be Better

Traditional contributions may still make more sense if you:

  • Are currently in one of your highest earning years.
  • Expect substantially lower taxable income in retirement.
  • Need today's tax deduction.
  • Are trying to reduce AGI for tax planning purposes.

There's nothing wrong with preferring today's deduction when the math supports it.

Good planning isn't about choosing Roth every time.

It's about minimizing your lifetime taxes.

Remember—You Don't Always Have to Choose One

One of the most overlooked planning opportunities is that many employer plans allow participants to split their contributions between Traditional and Roth.

For some households, contributing part to each account creates the best balance between today's tax savings and tomorrow's tax flexibility.

This is especially true for clients who are close to the line where predicting future tax rates becomes difficult.

What Changed in 2026?

Beginning January 1, 2026, SECURE 2.0 requires certain higher-income employees to make all catch-up contributions as Roth contributions.

The rule applies if your prior-year FICA wages exceed $145,000 (indexed annually for inflation).

It's important to note that this threshold is based on W-2 Social Security (FICA) wages, not Adjusted Gross Income or taxable income.

If you exceed the threshold:

  • Your regular 401(k) contributions may still be traditional or Roth, depending on your employer's plan.
  • Your age-50 (or older) catch-up contribution must be Roth.
  • Those below the threshold may continue choosing between Traditional or Roth catch-up contributions.

While some view this as losing a tax deduction, many higher-income investors already have the majority of their retirement savings in tax-deferred accounts.

Adding more Roth dollars may actually improve long-term tax flexibility.

Planning Tip: Just because your catch-up contribution must be Roth doesn't mean your regular salary deferral has to be. In many situations, a blend of Traditional and Roth contributions creates the greatest long-term flexibility.

Don't Forget Your Employer's Plan

One important wrinkle many employees don't realize:

If your employer doesn't offer a Roth 401(k) option, highly compensated employees who are required to make Roth catch-up contributions generally cannot make catch-up contributions at all.

IRS guidance issued in September 2025 gave employers additional guidance on implementing these changes, but not every plan has completed the transition.

If you're approaching age 50—or already there—it's worth confirming that your employer's plan includes a Roth 401(k) feature.

Don't Forget About the Five-Year Rule

One advantage of starting Roth contributions earlier is beginning the Roth five-year clock.

Generally, qualified earnings can only be withdrawn tax free once the account has been open for at least five years and you're otherwise eligible for qualified distributions.

Starting sooner may provide greater flexibility later.

Employer Matching Contributions

Many employees assume that if they contribute to a Roth 401(k), everything inside the account becomes Roth money.

That's not necessarily true.

Although SECURE 2.0 allows employers to offer Roth matching contributions, many plans still deposit employer matching contributions into a traditional pre-tax account.

As a result, even employees contributing entirely to a Roth 401(k) often retire with both traditional and Roth assets.

Remember: Today's Decision Isn't Permanent

Choosing Traditional today doesn't mean you're locked into that decision forever.

Many retirees strategically complete Roth conversions after retirement—often during years when their taxable income temporarily falls before Social Security begins or before Required Minimum Distributions start.

Likewise, someone contributing primarily to a Roth today may later shift toward Traditional contributions if their income rises substantially.

Retirement planning isn't about making one perfect decision. It's about adapting your strategy as your life changes.

The Bottom Line

Choosing between a Traditional and Roth 401(k) isn't really an investment decision—it's a tax planning decision.

The new Roth catch-up rules may reduce flexibility for some higher-income workers, but they also encourage greater tax diversification, which can become incredibly valuable throughout retirement.

At Birch Street Financial Advisors, we don't simply compare today's tax bracket. We model projected tax rates over your lifetime, including retirement income, Roth conversion opportunities, Required Minimum Distributions, Medicare premiums, Social Security taxation, and estate planning goals.

Sometimes the answer is Traditional. Sometimes it's Roth.

And quite often, the best answer is both.

If you're wondering which approach makes the most sense for your situation, we'd be happy to help you evaluate your options and build a strategy that aligns with your long-term goals.