Preparing for retirement is a major step. This may seem confusing, and you may be unsure about the ways to contribute to your account.
Employee Contribution Types
There are two types of contributions you can choose from:
- Roth
- Pre-Tax
Note: It's important to know that these contribution types are most commonly associated with 401(k) or other retirement plans and are sometimes referred to as a "salary deferral." In addition, a Roth 401(k) or Roth 403(b) are not Roth IRAs.
It’s important for employees and employers to understand the differences since your plan may not allow all of these contribution types, and different rules apply to each one. This article breaks down the key points.
Pre-Tax vs. Roth Contributions
The differences between Roth and Pre-Tax are fairly straightforward, as the major difference is the tax treatment.
- Pre-Tax: With Pre-Tax contributions, the approach is “defer taxes now, pay them later.” You contribute to your retirement account without paying taxes upfront, effectively lowering your current taxable income. However, when you begin withdrawing funds in retirement, those distributions will be subject to income tax.
- Roth: Roth contributions follow the strategy of “pay taxes now, enjoy tax-free withdrawals later.” You pay income tax on the contributions upfront and then invest that post-tax money in your retirement account. While this doesn’t reduce your current taxable income, the benefit is that you won’t owe taxes on those funds—neither the contributions nor the earnings—when you withdraw them in retirement.
Roth and traditional deferrals are subject to similar contribution and distribution rules.
| Pre-Tax Contributions | Roth Contributions | |
| Contributions | Contributions are made ore-tax or before tax-dollars which means you pay taxes later. | Contributions are made after taxes or after tax-dollars, which means you pay taxes now. |
| Contribution Limits | $24,500 in 2026, plus a catch-up contribution of $8,000 for participants 50 and over. | |
| Income Limit | No limit to participate. | |
| Taxation and Withdrawals | Withdrawals of contributions and earnings are subject to federal and most states income taxes. | Withdrawals of contributions and earnings are not taxed provided it's a qualified distribution. Some examples of qualified distributions are:
|
| Rollovers | Can be rolled to any qualified plan or IRA. | Can only be rolled to another Roth 401(k) account or a Roth IRA. |
What Else Should You Consider?
There are a few factors you may want to consider when choosing your contribution amount.
- Age: The younger you are, the longer your time horizon to retirement, and the more it tends to favor Roth contributions because you have more years to build earnings, which will eventually be withdrawn tax-free. In contrast, if you are within ten years of retirement, you have a short period before withdrawals are made from your account, in which case pre-tax may make more sense.
- Income Level: Your income level also has a big impact on choosing between pre-tax and Roth. The higher your income level, the more it tends to favor pre-tax contributions. In contrast, lower to medium income levels can favor Roth contributions.
- Marital Status: If you're married and file a joint tax return, you have to consider not just your income but your spouse's income. If you make $30,000 a year, Roth might be the better option, but if your spouse makes $200,000 a year, your combined income on your joined tax return is $230,000, whereas a pre-tax contribution may be more appropriate because of the tax deduction.
- Withdrawal Plan in Retirement: If you anticipate that you would need the same level in retirement that you have now, making Roth contributions may make sense as your tax rate is not anticipated to drop in the retirement years. The benefits associated with Pre-tax contributions assume that you're in a higher tax rate now, and when you withdraw the money, you will be in a lower tax bracket.
- Abnormal Income Years: It's not uncommon during work years to have abnormal income years where your income ends up significantly higher or lower than it normally is. In these abnormal years, it may make sense to change your pre-tax to Roth.
How Do I Decide Which One to Choose?
A thoughtful decision between Roth and pre-tax contributions can help you take full advantage of those savings. Working with a tax-professional or financial advisor can help you answer questions like:
- When do you plan to retire?
- Do you have a strategy in place for achieving that plan?
- If you weren't saving for your retirement, what would you invest or spend that money on?
- How far are you to retirement?
The most important thing is to remember, there is no right answer. The key is that you are saving, and you are choosing what makes sense for you. Work with your advisor and choose the plan that works for you!
One Last Roth and Pre-Tax Comparison
To understand Roth and pre-tax a bit more, the example below shows a $200 monthly contribution, growing over 10, 20, 30, and 40 years at a hypothetical growth rate of 7%. Over 40 years, the saver contributes $96,000, which could grow to $528,025. Which would you rather pay taxes on—$96,000 or $528,025?
In the case of a Roth contribution, you would only pay taxes on the amount you contributed, which is $96,000. However, with the Pre-tax contributions, you would pay taxes on the entire $528,025. Even if you are in a lower tax bracket at retirement, you may end up paying more in total tax.
If a saver has selected both pre-tax and Roth contributions and is eligible for employer matching, the employer will match accordingly.
After-Tax Contributions
After-tax contributions are not considered to be a “deferral” under the tax code and, therefore, are not subject to those limits. In other words, after-tax contributions to a retirement plan can be more than the $24,500 annual limit (plus the additional $8,000 catch-up amount for participants over age 50) as long as the saver’s and employer’s total contributions do not exceed $72,000 in 2026.
Additionally, the tax treatment of Roth and after-tax contributions differs at withdrawal. Any earnings on Roth contributions are tax-free, but earnings on after-tax contributions are taxed as ordinary income. The tax code also requires withdrawals of after-tax contributions to include any earnings associated with those contributions.
At this time, J.P. Morgan does not support after-tax contributions.
Note: Starter 401(k)s are a specific type of 401(k) that Congress introduced in the SECURE Act 2.0 of 2022. Though similar to traditional 401(k)s, some key differences include lower employee contribution limits. For 2026, employees can contribute up to $6,000, with an additional $1,000 catch-up contribution allowed for those aged 50 and older.