Roth 401(k) plans are typically matched by employers at the same rate as they match traditional 401(k) plans. Some employers do not offer Roth 401(k) plans.

A Roth 401(k) is an employer-sponsored investment account that is similar to a traditional 401(k) plan in almost every way, except that the contributions to the account are taxed up-front rather than at the time of withdrawal.

It can be well-suited for people who expect to be in a high tax bracket when they retire and who do not want to pay taxes on investment returns.

Traditional 401(k) vs. Roth 401(k)

A traditional 401(k) is also an employer-sponsored retirement saving and investment account. Employers and employees both make contributions to 401(k)s on an elective basis.

Employers may choose to match an employee's contributions, up to a certain point. The money is then invested in various securities and mutual funds to grow until they are withdrawn, after retirement.

Key Takeaways

  • A Roth 401(k) is funded with post-tax dollars versus a 401(k) that is funded using pre-tax income. 
  • Not all employers offer Roth 401(k) retirement vehicles, as administrative work for handling Roth 40(k) may outweigh its benefits.
  • With a Roth 401(k), you will not be taxed on your investment returns at the time of withdrawal—if you 59½ years or older when you take money out of the account.

In a traditional 401(k), contributions are made with pre-tax dollars. This means that more money goes in right at the start, giving you a bigger pot of money to invest and watch grow. The contributions are also tax-deductible, so they might even move you to a lower tax bracket. That is something to consider, especially if you are on the cusp.

You pay taxes at the time the funds are withdrawn, which means you pay taxes on both your initial investment and your investment returns. After-tax contributions may be made after the pre-tax limits are reached.

The Roth 401(k) prevents you from being taxed on your investment returns at the time of withdrawal, as long as the withdrawal happens after you are 59½ years old. The flip side is that contributions are made post-tax, giving you a smaller investment pot to work with.

A Roth 401(k) is a hybrid retirement saving plan, and it combines elements of a Roth IRA and a traditional 401(k).

Employer Matches

If an employer matches a traditional 401(k) plan contribution, it is standard for it to match one for a Roth 401(k). Unlike the employee's contribution, however, the employer's contribution is placed into a traditional 401(k) plan, and it is taxable upon withdrawal. The employee's contribution goes into a Roth 401(k). Therefore, many employers have found the additional administrative demands of offering the Roth 401(k) outweigh the benefits to their employees and do not often offer one.

This is the reason for the perception, or misconception, that employers cannot provide a match to Roth 401(k) employee contributions when in reality, they are simply not providing the option for the plan at all due to the administrative hassle.

The Bottom Line

It is important to note that a traditional 401(k) plan can be rolled into a Roth 401(k) plan. Once funds from any source are in the Roth 401(k) plan, they cannot be moved into a traditional 401(k) plan, however. If your employer offers a Roth 401(k) plan, it may be worth considering, but only If you can afford to make post-tax contributions, and your tax bracket will be the same or higher when you retire.