989. Laura answers a listener's question about choosing a traditional or Roth retirement plan by reviewing the pros and cons of each and a new Roth rule for those over 50.
989. Laura answers a listener's question about choosing a traditional or Roth retirement plan by reviewing the pros and cons of each and a new Roth rule for those over 50.
Find a transcript here.
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Anna S. says, “I'm turning 50 this year, have a household income of $225,000, and max out a 401(k) that doesn't offer matching contributions. Should I make traditional or Roth contributions to my 401(k)?”
Thanks for sending me this email, Anna! Knowing whether to use a traditional or Roth retirement account is an important financial decision, especially as you reach the milestone of a 50th birthday.
This post will review the pros and cons of traditional and Roth accounts and a new Roth rule that applies to high earners over 50. I’ll offer a roadmap for your retirement strategy based on key factors, such as your age, income, and financial goals.
Hey, friends, and welcome back to the Money Girl podcast! This is Finance Friday, a special edition of Money Girl, where I answer your burning money questions.
I'm Laura Adams, an award-winning author who's been bringing you personal finance tips every week since 2008, with over 44 million downloads. I love hearing from you, so if something finance-related is on your mind, leave me a voicemail at 302-364-0308 or email me your question or comment via my contact page at LauraDAdams.com.
LISTEN ALSO: How to get retirement matching without an employer
How do retirement catch-up contributions work?
Before discussing traditional and Roth accounts, I want to explain a significant retirement benefit available to Anna and anyone over 50: catch-up contributions. They’re additional funds you can contribute beyond the annual limits set by the IRS, if allowed by your employer’s retirement plan.
Catch-up contributions allow you to save more as you approach retirement. That can be really helpful if you’ve delayed saving or are behind on your retirement goals.
For 2026, participants under 50 can contribute up to $24,500 to most workplace retirement accounts, including 401(k)s, 403(b)s, and 457 plans. However, starting the year of your 50th birthday, you’re eligible to make up to an additional $8,000 catch-up contribution, for a total of $32,500.
There is an exception for participants aged 60 through 63, called a super catch-up, which allows them to contribute up to $11,250, bringing their total to $35,750. Here’s a summary of the 2026 rules:
Anna’s question concerns a workplace retirement plan, but I’ll note that individual retirement accounts (IRAs) also allow catch-up contributions. For 2026, if you’re qualified, you can contribute up to $7,500, or $8,600 if you’re over 50, to a traditional or Roth IRA.
If you have more than one type of retirement account and meet eligibility requirements, you can make catch-up contributions to multiple accounts. However, you can’t exceed the contribution limits for each account type, such as a 401(k) or IRA.
What is the new mandatory Roth rule?
In general, catch-up contributions have typically been made on a traditional, pre-tax basis. However, starting in 2026, there’s a new rule that high earners (based on your prior year’s income) can only make them on an after-tax basis, to a Roth account.
If you earned over $150,000 in 2025, any catch-up contributions must go into the Roth part of your 401(k), not the traditional part. So, this may apply to Anna if she’s the sole breadwinner with $225,000 of household income. However, the $150,000 income threshold will be adjusted for inflation in future years and likely increase.
Since Anna will turn 50 this year, she qualifies to make an $8,000 catch-up contribution on top of the standard $24,500. That could be a great way to sock away more for retirement, especially since her employer doesn’t offer matching contributions.
As I mentioned, the $8,000 catch-up for high earners must be an after-tax Roth contribution, but the rest can be traditional or Roth in any combination up to $24,500. But if Anna earned $150,000 or less in 2025, she’s exempt from the new Roth mandate and could choose to invest catch-up contributions as pre-tax traditional or after-tax Roth.
However, if an employer’s plan doesn’t allow Roth contributions, those earning over $150,000 won’t be eligible for catch-up contributions. So, speak with your employer or benefits administrator if your retirement plan doesn’t give you a Roth option to accommodate the new catch-up mandate.
Also, note that the new Roth catch-up rule only applies to workplace retirement plans, not IRAs or SEP-IRAs (for the self-employed). However, if you’re self-employed with a solo 401(k), the Roth mandate does apply if you receive W-2 wages from your business.
The downside of the new Roth mandate is that those over 50 with high incomes will owe more income tax in the current year. However, the upside is that you can take Roth withdrawals tax-free after age 59.5, if you’ve owned the account for at least five years.
RELATED: Solo 401(k) or SEP-IRA–which is right for you?
Pros and cons of using a traditional retirement account
Now that you understand the rules for making catch-up contributions after age 50, let’s get back to Anna’s question about using a traditional or Roth account. Assuming Anna’s sole income is $225,000, using a traditional 401(k) will likely save her the most taxes, especially if her income will be lower in retirement.
For instance, making pre-tax, traditional retirement contributions could save Anna and a spouse (if filing jointly) approximately 24% in taxes. In other words, every dollar she puts into a traditional 401(k) saves her about 24 cents in federal taxes.
The primary downside of a traditional retirement account is that withdrawals are subject to ordinary income taxes. Plus, you must make required minimum distributions (RMDs) starting at age 73 (or 75 as of 2033) so the government begins collecting income taxes that you haven’t yet paid on a traditional account.
LISTEN ALSO: Should I max out a 401(k) before opening a Roth IRA?
Pros and cons of using a Roth retirement account
After-tax, Roth contributions don’t cut your tax bill in the current year; however, you can withdraw your future account balance entirely tax free. Anna could pay about 24% now on Roth contributions to ensure that she pays 0% tax on the account in retirement.
Making Roth contributions typically means you have a higher income tax bill. However, you create a future source of income that will be tax-free. That could be wise if Anna believes her income in retirement will be higher than today or if future tax rates will be higher across the board, perhaps due to the federal deficit.
Using a Roth is always wise when you’re starting your career or have low income years. Paying a lower tax rate today can save a tremendous amount of taxes if your future income is higher. Plus, if you have decades to go before retirement, it’s likely that you’ll have a huge amount of investment growth that you won’t have to pay a penny in taxes for.
While a Roth IRA has an income limit you can’t exceed to qualify for contributions, there’s no income limit for a workplace Roth. That makes a Roth 401(k) an excellent solution for high earners who want to minimize taxable income in retirement.
In addition, Roth accounts don’t have RMDs. You can leave the funds in a Roth indefinitely, or pass them to your heirs without any tax obligations. Having more control over when and how much income you take from a retirement account gives you more flexibility and tax planning opportunities.
RELATED: 4 ways to fund a Roth no matter your income
To sum up, if Anna needs a larger tax deduction in the current year, traditional 401(k) contributions will help her. However, if she already has a large traditional balance, diversifying tax types may be wise. In addition, if Anna wants more tax-free income in retirement, Roth contributions are a winner.
I recommend considering a split strategy where you contribute approximately half to a traditional and half to a Roth. For instance, Anna could contribute $16,250 to her traditional 401(k) and $16,250 to a Roth 401(k), for a total of $32,500, satisfying the Roth mandate on the catch-up portion, if she qualifies as a high earner for last year.
But there’s nothing wrong with making 100% Roth 401(k) contributions for some time, especially if you only have traditional funds. That quickly builds your tax diversity so you have a larger bucket of tax-free money to spend in retirement.
Anna, I’m a big proponent of building wealth in a workplace Roth, especially if you’re a high earner who doesn’t qualify for a Roth IRA. Not having to share a portion of your retirement balance with the government is a terrific benefit you (and any heirs) can look forward to!
Remember, you can also email me with any questions or comments via my contact page at LauraDAdams.com. While you’re there, sign up for The Money Stack, my Substack newsletter. You can subscribe for free or support the show by becoming a paid member and getting access to my live educational and Q&A events!
That's all for now. I'll talk to you soon. Until then, here's to living a richer life!
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