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According to everything I can find, the annual contribution limit for both traditional and Roth 401k is the same ($16500 in 2010).

Since the Roth is post-tax, doesn't that mean I can save more for retirement by maxing out a Roth 401k than by maxing out a Traditional? In other words, I can save 16500 pre-tax or save 23571 which becomes 16500 post-taxes (assuming a 30% effective tax rate).

My thinking here is that saving as much tax-advantaged money as possible is a good idea.

Or do I misunderstand the contribution limit?

(I'm assuming my tax rate is the same now as at retirement just for the sake of making a point; I realize it's not a good assumption to make for actual planning).

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  • Good point that saving $1000 in a roth is more than saving $1000 in a 401k.
    – Alex B
    Apr 18, 2011 at 15:35

3 Answers 3

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Yes. I describe the Roth flavor as "denser." For those with more money they wish to save this factor should be added to the mix. Of course you can save $16500 + 5000 (in an IRA) for $21500 total pretax if you wish (and are within the limits.)

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  • You are most welcome. Your question wisely points out what many miss in the Roth discussion.
    – JTP - Apologise to Monica ♦
    Apr 18, 2011 at 17:45
  • @JoeTaxpayer Not only many average people but many people that should know better--I rarely see any mention of this in financial advice.
    – Loren Pechtel
    Aug 13, 2015 at 2:53
  • Another consideration is that the Roth 401k taxes you now, while the regular 401k decreases your taxable income for the contribution year,. It also gives you the flexibility to convert it piecemeal later, such as when you're in lower income bracket(s) over future years, e.g., if you're unemployed for a while, taking a break from the workforce, or retired.
    – user117529
    May 7, 2019 at 0:37
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    @user117529 - indeed. There's an awful lot of details to consider when choosing retirement accounts. Your point is 100% true, the question had a very narrow focus, and I pretty much avoided any other discussion, as we have a large number of questions discussing the 401(k) and IRA accounts.
    – JTP - Apologise to Monica ♦
    May 7, 2019 at 11:24
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Traditional and Roth 401k share a contribution limit of $16.5k. This means you could actually contribute to both if you wished to (say, if you weren't 100% on how taxes will change come retirement time), but the combined contributions for the year cannot exceed that limit.

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  • And what bearing does this have on the question??
    – Loren Pechtel
    Aug 13, 2015 at 2:54
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This is an older question but things have changed. Its a common misconception on what the contribution cap is. A few things.

In 2014, the IRS did not adjust the maximum contribution from the previous year which include 401(k) accounts, 403(b) accounts, most 457 plans, and Thrift Savings Plans, will be $18,000, up $500 from $17,500.

Savers and investors aged 50 or older can take advantage of a catch-up contribution. In 2015, taxpayers who meet this age-based criterion can contribute an additional $6,000 above the regular maximum of $18,000, thus you can contribute a maximum of $24,000 into these tax-advantaged accounts.

The total contribution limit, including employer contributions, has increased to $53,000

You can actually contribute up to 53k (including matching) so the exact amount you contribute from your actual income may end up being more or less than 24k. If you get a poor employer match you can actually contribute more but it would go in as after tax dollars and not claim the tax deduction. Note: after tax does NOT equal Roth.

However if your a high salaried individual you can use this as a potential loop hole for funding a Roth IRA. Chances are if your making enough money to contribute 53k Total Contributions then your not going to qualify for a roth. However once you retire (or possibly before depending on the plan withdraw terms) you can roll the after tax money into a Roth IRA. This is a gray area on the tax policy. The IRS may come back and change their mind about this. If considering this option talk to a tax adviser.

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    Interesting writing, but it doesn't address the question as asked, in my opinion.
    – JTP - Apologise to Monica ♦
    Aug 13, 2015 at 1:20
  • The question appears to be around 401k contribution limits which I feel I addressed.
    – Dynas
    Aug 13, 2015 at 12:45
  • OP asked for a comparison between traditional and Roth 401(k). Not seeing it here.
    – JTP - Apologise to Monica ♦
    Aug 13, 2015 at 13:05

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