Roth 401(k)
Also: Roth 401k, Roth 401(k), designated Roth account, DRAC
An employer-sponsored retirement account funded with post-tax payroll deferrals. Contributions offer no current deduction, but qualified distributions, including earnings, are federal and state tax-free after age 59 1/2 and five years.
A Roth 401(k) is a designated Roth account inside an employer plan. Contributions are after-tax, so wages remain fully taxed in the deferral year. In return, qualified distributions (after age 59 1/2 and a five-year clock from first Roth contribution) are tax-free on both principal and earnings. The 2025 elective deferral limit is shared with the traditional 401(k): $23,500 combined. SECURE 2.0 eliminates the RMD requirement for Roth 401(k) accounts starting in 2024.
Example: an engineer in the 32% bracket contributes $23,500 to a Roth 401(k) in 2025. She pays an extra $7,520 in current federal tax compared with a traditional deferral. Thirty years later the account grows to $200,000 at 7% annual return. All $200,000 is tax-free at distribution, compared with a traditional account that would owe $60,000 or more at retirement bracket rates.
Common mistake: choosing Roth 401(k) when expecting to be in a lower bracket at retirement. Pre-tax deferrals usually win for high-income professionals who plan to retire at a lower bracket.
Roth 401(k) matters for early-career tech employees at lower brackets, for those expecting post-exit high-asset retirement, and for anyone funding estate transfers at death.