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Comparing traditional and Roth 401(k)/403(b) contributions

Both traditional and Roth 401(k) and 403(b)s offer tax advantages. Use this side-by-side comparison of the important features of traditional and Roth accounts to understand your options.

Employers with 401(k) or 403(b) plans aren’t required to offer Roth accounts, so check with your benefits department to find out if the Roth option is offered by your plan.

Contribution limits
Employer matching contributions
Federal income taxes
Distributions (withdrawals)
Required minimum distributions (RMDs)
Loans and hardship withdrawals
Effects on taxable income
Options when employment ends

Contribution limits

Traditional 401(k)/403(b)	Roth 401(k)/403(b)
The maximum contribution is $18,500, or $24,500 for participants 50 and older, in 2018. However, plans may set lower limits.	Same as traditional. The limits apply to all contributions combined, whether traditional, Roth or both.

Employer matching contributions

Traditional 401(k)/403(b)	Roth 401(k)/403(b)
Employer matching contributions are allowed if offered by the plan. Matching contributions are not included in income when made to the plan and are taxable when withdrawn.	Same as traditional.

Federal income tax treatment

Traditional 401(k)/403(b)	Roth 401(k)/403(b)
Contributions and earnings are taxable when withdrawn.	Qualified distributions are tax- and penalty-free. (See Distributions below for more details.)

Distributions (withdrawals)

Traditional 401(k)/403(b)	Roth 401(k)/403(b)
Distributions are taxable as ordinary income. A 10% early withdrawal penalty may apply on distributions made before you reach age 59½. If employment is terminated in the year you turn age 55 or later, withdrawals may be penalty-free but are still taxable.	Qualified distributions are tax- and penalty-free if the first Roth contribution was made at least five years before and the participant: is 59½ years old or older is disabled, or has died For nonqualified distributions, earnings are taxable and may be subject to a 10% early withdrawal penalty.

Traditional 401(k)/403(b)

Roth 401(k)/403(b)

Distributions are taxable as ordinary income.

A 10% early withdrawal penalty may apply on distributions made before you reach age 59½.

If employment is terminated in the year you turn age 55 or later, withdrawals may be penalty-free but are still taxable.

Qualified distributions are tax- and penalty-free if the first Roth contribution was made at least five years before and the participant:

is 59½ years old or older
is disabled, or
has died

For nonqualified distributions, earnings are taxable and may be subject to a 10% early withdrawal penalty.

Required minimum distributions (RMDs)

Traditional 401(k)/403(b)	Roth 401(k)/403(b)
You must take required minimum distributions beginning at age 70½ or at retirement, whichever is later. Once withdrawals begin, RMDs must be taken each year. To avoid RMDs during your lifetime, you can roll your account assets into a Roth IRA when you�re eligible to take distributions. You’ll be responsible for any unpaid taxes on the taxable portion of your rollover.	Same as traditional.

Traditional 401(k)/403(b)

Roth 401(k)/403(b)

You must take required minimum distributions beginning at age 70½ or at retirement, whichever is later. Once withdrawals begin, RMDs must be taken each year.

To avoid RMDs during your lifetime, you can roll your account assets into a Roth IRA when you�re eligible to take distributions. You’ll be responsible for any unpaid taxes on the taxable portion of your rollover.

Same as traditional.

Loans and hardship withdrawals

Traditional 401(k)/403(b)	Roth 401(k)/403(b)
Plans may allow loans and hardship withdrawals.	Same as traditional.

Effects on taxable income

Traditional 401(k)/403(b)	Roth 401(k)/403(b)
Taxable income is used in determining your tax bracket and eligibility for certain benefits, such as tax credits and financial aid. Traditional contributions reduce your taxable income at the time of investment. However, distributions from traditional accounts are taxable as ordinary income.	Roth contributions do not reduce your taxable income at the time of investment. However, qualified Roth distributions are not taxable.

Traditional 401(k)/403(b)

Roth 401(k)/403(b)

Taxable income is used in determining your tax bracket and eligibility for certain benefits, such as tax credits and financial aid.

Traditional contributions reduce your taxable income at the time of investment. However, distributions from traditional accounts are taxable as ordinary income.

Roth contributions do not reduce your taxable income at the time of investment. However, qualified Roth distributions are not taxable.

Options when employment ends

Traditional 401(k)/403(b)	Roth 401(k)/403(b)
When leaving your employer, your account balance can be: Cashed out. Taxes and penalties may apply. Rolled into a Traditional IRA. Rolled into a Roth IRA. The rollover is taxable but is not subject to the early withdrawal penalty. Rolled into a new employer’s plan, if the plan accepts rollovers. Left in your previous employer’s plan, as long as the balance stays above the required minimum ($5,000 or less, depending on the plan).	When leaving your employer, your account balance can be: Cashed out. Taxes on earnings and penalties may apply for nonqualified distributions. Rolled into a Roth IRA. Rolled into a new employer’s plan, if the plan accepts rollovers and Roth contributions. Left in your previous employer’s plan, as long as the balance stays above the minimum required by the plan.

Traditional 401(k)/403(b)

Roth 401(k)/403(b)

When leaving your employer, your account balance can be:

Cashed out. Taxes and penalties may apply.
Rolled into a Traditional IRA.
Rolled into a Roth IRA. The rollover is taxable but is not subject to the early withdrawal penalty.
Rolled into a new employer’s plan, if the plan accepts rollovers.
Left in your previous employer’s plan, as long as the balance stays above the required minimum ($5,000 or less, depending on the plan).

When leaving your employer, your account balance can be:

Cashed out. Taxes on earnings and penalties may apply for nonqualified distributions.
Rolled into a Roth IRA.
Rolled into a new employer’s plan, if the plan accepts rollovers and Roth contributions.
Left in your previous employer’s plan, as long as the balance stays above the minimum required by the plan.

If you’re trying to decide which option to use, find out why tax rates could be the key.

Read your employer’s summary plan description for details specific to your plan, such as contribution limits and employer matches. You should consult a financial professional or tax professional to find out more about your options.

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Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in fund prospectuses, summary prospectuses and similar documents available from your plan’s financial professional or after logging in to your account, going to Investments and clicking on Investment options. Read this information carefully before investing.