What's the Difference Between a Traditional 401(k) and a Roth 401(k)?

A traditional 401(k) and a Roth 401(k) are both workplace retirement accounts, but they differ in when you pay taxes on the money. With a traditional 401(k), contributions are made pre-tax, which reduces your taxable income today, and you pay income tax when you withdraw the money in retirement. With a Roth 401(k), contributions are made with after-tax dollars, so you pay taxes now, but qualified withdrawals in retirement are completely tax-free. Both types are subject to the same annual contribution limit ($23,000 in 2024), and many employers allow you to split your contributions between them. If you expect to be in a higher tax bracket in retirement, the Roth 401(k) tends to be the better long-term choice.