Roth 401(k) Definition

A Roth 401(k) is a retirement savings plan combining some features of a Roth IRA with some features of a 401(k). With a traditional 401(k) an employee contributes pre-tax earnings while with a Roth 401(k) an employee contributes post-tax earnings. With a traditional 401(k) the retired employee is taxed as funds are withdrawn while with a Roth 401(k) the retired employee is not taxed on the funds withdrawn (although several restrictions apply).

Roth 401(k) accounts are attractive to any employee who believes that their taxable rate will be higher in retirement than during employment-which is often caused by a loss of deductibles combined with high retirement income from investment accounts.