To Roth or Not

Published On: January 13, 2026

Written by: Ben Atwater and Matt Malick

As we enter this new year, the retirement savings landscape is shifting.

Today we highlight new Roth 401(k) options for savers in response to the final implementation of the SECURE Act 2.0.

The primary driver behind Roth 401(k) options in most plans this year is a mandatory provision regarding “catch-up” contributions. As of January 1, 2026, any employee age 50 or older who earned more than $150,000 in the prior year (indexed for inflation from the original $145,000 threshold) must make their catch-up contributions on a Roth basis.

For companies to legally allow these governmentally-defined high-earners to make catch-up contributions at all, plans must now offer a Roth elective deferral option. Consequently, most medium-to-large employers have amended their plans to include Roth features to ensure their top talent can continue to maximize their retirement savings.

The allure of the Roth 401(k) lies in its long-term tax efficiency. Unlike a traditional 401(k), you make contributions with after-tax dollars, meaning you pay the tax now in exchange for powerful future benefits, which include:

1. Tax-Free Withdrawals: You can withdraw both your principal and all compounded growth tax-free in retirement, provided you meet certain conditions.
2. Elimination of RMDs: Under current rules, Roth 401(k)s – and rollover Roth IRAs – are not subject to Required Minimum Distributions (RMDs) during the owner’s lifetime, allowing your money to stay invested longer.
3. Tax Diversification: Having a “bucket” of tax-free money allows you to manage your tax bracket more effectively in retirement, especially if tax rates rise in the future.

The primary drawback is the immediate impact on your cash flow and tax bill. Because Roth contributions do not reduce your current adjusted gross income (AGI), you will face:

1. Higher Current Taxes: Mass affluent earners in high marginal brackets (32%, 35%, or 37%) will feel the lack of a tax deduction immediately.
2. Impact on Credits: A higher AGI could potentially trigger the phase-out of other tax credits or increase the cost of various income-based deductions.
3. Opportunity Cost: The money used to pay the taxes today you could theoretically invest elsewhere, though the tax-free growth of the Roth will often outweigh this over long horizons.

For many high earners, the best approach is tax diversification rather than an “all or nothing” strategy.

If you are over 50 and earning above $150,000, your catch-up contributions (up to $8,000 in 2026) are now Roth by default. For your base contributions (up to $24,500), consider a split strategy. If you believe your tax rate in retirement will be lower than it is today, continue utilizing the Traditional 401(k) for your base deferrals to capture the immediate 30%+ tax savings.

However, if you are decades from retirement or anticipate that tax rates will rise to address national debt, shifting a portion of your base deferrals to Roth can create a vital “tax-free” hedge.

Overall, the younger you are, regardless of your income, the more the shift to a Roth contribution can benefit you over the long term.

Additionally, taxpayers with an effective tax rate of less than 20% would be wise to consider the Roth option.

Reaching retirement with a mix of taxable, tax-deferred, and tax-free assets gives you the flexibility to withdraw funds in the most tax-efficient manner possible.

This is an important strategic consideration for those contributing to 401(k) and 403(b) plans, so we strongly encourage you to please contact us to discuss your specific situation.