If your employer offers both a Roth 401(k) and a traditional 401(k), you’ve probably stared at that enrollment screen and wondered which one is actually better. The internet tends to give one of two answers. Either “Roth is always better because tax-free growth wins,” or “high earners should always choose traditional because the deduction is worth more.” Neither one holds up as a rule.
For many high earners in California, the traditional 401(k) often makes sense during peak earning years, because the deduction saves tax at both high federal and high California rates, and many people expect to be in a lower bracket, or a different state, in retirement. But there are real reasons a Roth 401(k), or a mix of both, may be the better fit, including expected future income, the size of your existing pre-tax savings, plans to retire outside California, and how much flexibility you want later in life.
The core question is simple: would you rather pay tax on this money now, or later? The answer depends on when you expect your tax rate to be lower. For HENRYs, short for “High Earners, Not Rich Yet,” that question is harder than it looks, because income in your 30s and 40s can change quickly with promotions, equity compensation, career changes, or a spouse returning to work.
What’s the Difference Between a Roth and a Traditional 401(k)?
Both accounts share the same annual employee contribution limit, and you can split your contributions between them in whatever way your plan allows. The difference is when you pay tax.
With a traditional 401(k), your contributions reduce your taxable income this year. The money grows tax-deferred, and when you withdraw it in retirement, every dollar is taxed as ordinary income.
With a Roth 401(k), you pay tax on your contributions now, so there’s no deduction this year. The money grows tax-free, and qualified withdrawals in retirement come out tax-free as well, generally once you’re 59½ and the account has been open at least five years.
Unlike a Roth IRA, the Roth 401(k) has no income limit. That makes it one of the simplest ways for high earners to get money into Roth accounts without needing a workaround. And since 2024, Roth 401(k)s are no longer subject to required minimum distributions during the original owner’s lifetime, which removed one of the old disadvantages.
California generally follows the federal treatment for both types of 401(k) contributions, so a traditional deferral reduces your California taxable income too, and a Roth contribution doesn’t.
Contribution limits change most years, and you can find the current figures on the IRS retirement plan contribution limits page. It’s worth checking them before setting your elections each year.
Why Do Many High Earners Lean Toward the Traditional 401(k)?
The case for traditional comes down to tax rates. If your combined federal and California rate is high today and likely lower in retirement, deferring tax now and paying it later at a lower rate generally comes out ahead.
California makes this argument stronger than it would be in many states. Every traditional deferral avoids California’s high state income tax this year. If you later retire somewhere with lower state taxes, or no state income tax at all, federal law generally prevents California from taxing 401(k) withdrawals once you’re no longer a resident. That combination, a California deduction now and potentially no state tax later, is one of the more compelling reasons California HENRYs often lean traditional.
There’s also a cash flow benefit. Because traditional contributions lower your tax bill now, they cost less out of your paycheck than the same Roth contribution. For HENRYs balancing a mortgage, childcare, and other savings goals, that difference can be meaningful.
Lower adjusted gross income can help in other ways too. It may affect eligibility for certain credits and deductions, and for professionals with federal student loans on income-driven repayment plans, a lower AGI can mean lower required payments. These side effects are easy to overlook and can sometimes matter more than the tax rate comparison itself.
When Might a Roth 401(k) Make More Sense?
The Roth tends to shine when your tax rate today is lower than you expect it to be later, or when you value certainty and flexibility over a bigger deduction now.
Early in a career, the Roth can be especially appealing. A resident physician, an associate in their first years at a law firm, or someone who just joined a startup at a reduced salary may be in a lower bracket now than they will be for most of their working life. Paying tax at today’s rate and letting the money grow tax-free often makes sense in those years.
The Roth also becomes more interesting if you already have a large pre-tax balance. High earners who max out a traditional 401(k) for 25 or 30 years can end up with substantial pre-tax savings. Once required minimum distributions begin, those withdrawals can push retirement income higher than people expect, sometimes into the same bracket they were in while working. That can also raise Medicare premiums through IRMAA, the income-based surcharge on Medicare Parts B and D.
There’s a planning consideration for married couples as well. When one spouse passes away, the surviving spouse usually moves from joint to single filing status, with narrower tax brackets, while much of the household’s retirement income continues. Roth money can soften that shift. I explain more about why taxes often rise after the loss of a spouse in why taxes can change so much the year after a spouse dies.
Finally, some people simply prefer to pay the tax now because future tax rates are uncertain. Nobody knows what tax law will look like in 25 years, and holding some money in Roth accounts is one way to avoid having every retirement dollar exposed to whatever rates exist then.
Do I Have to Choose One or the Other?
No, and for many high earners the best answer is a blend.
Planners often talk about “tax diversification,” which simply means having money in accounts that are taxed differently: pre-tax accounts like a traditional 401(k), tax-free accounts like a Roth, and taxable brokerage accounts. In retirement, that mix gives you choices. In a year with large expenses, you might draw from Roth to avoid pushing your income higher. In a lower-income year, you might draw more from pre-tax accounts while your bracket is low.
Consider a dual-income couple in their late 30s, one working in tech and the other in healthcare. They’ve always defaulted to traditional contributions, and nearly all of their retirement savings is pre-tax. Rather than switch everything to Roth, they decide to keep most contributions in traditional during their highest-earning years while directing a portion to Roth, building a tax-free bucket alongside their pre-tax savings without giving up most of the deduction.
The split can also shift from year to year. In a year with a large RSU vest or bonus that pushes income higher, traditional contributions may be more valuable. In a lower-income year, perhaps during a career change, parental leave, or a sabbatical, shifting more toward Roth may make sense. If equity compensation is a big part of your income, my post on RSU and tax planning strategies for high-income professionals covers how vesting years affect these choices.
How Does the Employer Match Work With a Roth 401(k)?
Traditionally, employer matching contributions went into the pre-tax side of the 401(k), even if you contributed to the Roth. That’s still the most common setup.
Under SECURE 2.0, employers can now offer the option to receive matching or profit-sharing contributions as Roth, if the plan allows it. If you choose that option, the employer contribution is included in your taxable income for the year. It’s worth checking your plan’s rules, since many employers haven’t added this feature yet.
There’s also a newer rule for high earners age 50 and older. Starting in 2026, people whose prior-year wages from their employer exceed an IRS threshold are generally required to make any catch-up contributions as Roth rather than traditional. For HENRYs in their 30s and 40s, this is a future consideration, but it’s another reason to understand how the Roth side of your plan works. As with all of these rules, it’s worth confirming the current details before acting, since thresholds and guidance continue to evolve.
What If I Plan to Leave California in Retirement?
This is one of the biggest factors for California high earners, and it often tips the decision.
If you expect to retire in California, the comparison is mostly about whether your combined federal and state rate will be higher now or later. If you expect to move to a state with lower or no income tax, the traditional 401(k) gains an advantage, because you get the California deduction now and may avoid state tax on the withdrawals later.
Plans change, of course. Many people expect to move and end up staying close to children and grandchildren, or the opposite happens. Because no one knows for certain, this is another reason a blend can be sensible. You capture most of the California deduction now while still building some Roth savings in case you stay.
Consider a couple in their early 40s who both plan to retire near family in a state without an income tax. For them, maximizing traditional contributions during their peak California earning years may make a lot of sense, with the idea that some of that pre-tax money could later be converted to Roth in lower-income years after they move, potentially without California state tax on the conversion.
Can I Convert Traditional 401(k) Money to Roth Later?
Often, yes. Many plans allow in-plan Roth conversions, and after you leave an employer, you can generally roll pre-tax money into an IRA and convert it to a Roth IRA. Either way, the converted amount is taxed as ordinary income in the year of conversion.
This is why choosing traditional now doesn’t close the door on Roth later. Some of the most effective conversion windows come in the years between retirement and when required minimum distributions begin, or during a lower-income year like a sabbatical or business transition. I cover how to evaluate that decision in when Roth conversions make sense for high-income earners in California.
How Does This Fit Into the Rest of Your Plan?
The 401(k) choice connects to almost everything else in your financial life. It affects your take-home pay and how much you can save elsewhere, your adjusted gross income and any credits or loan payments tied to it, how much flexibility you’ll have to manage taxes in retirement, and what you eventually leave to your children.
It’s also a choice that should change as your life changes. The right answer at 32 may not be the right answer at 45, especially as income rises, equity compensation grows, or the size of your pre-tax savings shifts. My post on tax-efficient investing after 45 talks about why your strategy should keep pace with your income.
If you’re also trying to figure out which account gets your next dollar after the 401(k), my post on maximizing retirement contributions to lower your taxes walks through how the pieces fit together.
When Does It Make Sense to Work With an Advisor?
Choosing between Roth and traditional is one of those decisions that seems small each year but adds up to a very large number over a career. It also sits squarely between tax planning and investment planning, which is why it often falls through the cracks. Your CPA sees this year’s return, your investment advisor sees your account balances, and nobody is projecting what your retirement tax picture will actually look like.
As both a CPA and a CFP®, I find this decision works best when we look at it in both directions: what you save in tax this year, and what your income, required distributions, and Medicare premiums may look like decades from now. I talk more about why that connected view matters in every major financial decision has tax consequences. It may be worth exploring with your advisor if your income has changed significantly, you’re considering leaving California, or nearly all of your retirement savings is currently pre-tax.
Frequently Asked Questions
Should high earners choose a Roth or traditional 401(k)?
Many high earners lean traditional during peak earning years, especially in California, because the deduction saves tax at high federal and state rates. A Roth or a blend of both may make more sense if you expect higher income later, already have large pre-tax savings, or want more flexibility in retirement.
Is there an income limit for a Roth 401(k)?
No. Unlike a Roth IRA, the Roth 401(k) has no income limit, so high earners can contribute as long as their employer’s plan offers it.
Can I contribute to both a Roth and traditional 401(k)?
Yes, if your plan allows it. Your combined contributions to both share one annual employee limit, and you can split them however your plan permits.
Does California tax 401(k) contributions?
California generally follows the federal rules. Traditional 401(k) contributions reduce your California taxable income, and Roth 401(k) contributions don’t.
Will California tax my 401(k) if I retire in another state?
Federal law generally prevents a state from taxing retirement plan distributions of people who are no longer residents of that state. If you move out of California before taking withdrawals, California generally can’t tax them. Confirm the rules for your new state as well.
Does my employer match go into the Roth side?
Usually not. Most employers still make matching contributions on a pre-tax basis. Some plans now allow Roth matching contributions, which are included in your taxable income for the year.
Do Roth 401(k)s have required minimum distributions?
Not anymore. Starting in 2024, Roth 401(k)s are no longer subject to required minimum distributions during the original owner’s lifetime.
Is a Roth 401(k) better for young professionals?
It often is in lower-income years, such as residency, early career, or a reduced-salary startup role, because you pay tax at a lower rate now and the growth is tax-free later. As income rises, the balance may shift toward traditional.
Can I convert my traditional 401(k) to Roth later?
Often, yes. Many plans allow in-plan Roth conversions, and after leaving an employer you can roll pre-tax money to an IRA and convert it. The converted amount is taxed as ordinary income in that year.
Does choosing a traditional 401(k) help with student loan payments?
It can. For federal student loans on income-driven repayment plans, payments are generally based on adjusted gross income, and traditional 401(k) contributions lower that income.
What is the Roth catch-up rule for high earners?
Starting in 2026, people age 50 and older whose prior-year wages from their employer exceed an IRS threshold generally must make catch-up contributions as Roth. It’s worth confirming the current threshold and how your plan handles it.
How often should I revisit my Roth vs. traditional split?
Many people revisit it once a year, often during open enrollment or after a major income change like a promotion, large RSU vest, job change, or parental leave.
In Short
The Roth vs. traditional decision comes down to whether you expect your tax rate to be higher now or in retirement.
Many California high earners lean traditional during peak years because the deduction saves both federal and high California tax.
Planning to retire outside California can strengthen the case for traditional, since California generally can’t tax distributions after you move.
A Roth may make more sense in lower-income years, when pre-tax savings are already large, or when you want flexibility and certainty later.
A blend of both builds tax diversification, which gives you more control over taxable income in retirement.
Choosing traditional now doesn’t rule out Roth later, since conversions in lower-income years are often possible.
Contribution limits and catch-up rules change, so it’s worth confirming current figures each year before setting your elections.
About Katherine
Katherine Leonard is a CPA and CFP® who started KCL Wealth Management after years of watching people get pulled between an advisor, a CPA, and an attorney who never actually talked to each other. The Roth versus traditional decision is a good example of a choice that looks simple on an enrollment screen but connects to your taxes, retirement income, and long-term plans all at once. She wanted to be the person clients could bring their whole financial picture to, someone who actually has their back. If any of this feels relevant to your own situation, she’d love to talk it through. Visit kclwealth.com/contact to request an intro call.
This article is provided by KCL Wealth Management for general informational and educational purposes only. It does not constitute individualized investment, tax, legal, or accounting advice, and it should not be relied upon as the basis for any financial decision. The strategies and concepts discussed may not be suitable for every individual, and the appropriate course of action depends on each person’s specific facts and circumstances. Tax laws, regulations, contribution limits, deduction thresholds, and other figures referenced in this article are subject to change, and their application varies by individual. Readers should confirm current rules and figures and consult a qualified tax, legal, or financial professional before taking any action. Information is believed to be accurate as of the date of publication but is not guaranteed and may become outdated. Any examples are hypothetical, are provided for illustrative purposes only, and do not reflect the experience of any specific client. All investing involves risk, including the possible loss of principal, and no strategy can ensure a profit or protect against loss. Links to third-party websites are provided for convenience only, and KCL Wealth Management is not responsible for their content. Reading this article does not create an advisory, accounting, or client relationship with KCL Wealth Management or Katherine Leonard, CPA, CFP®. For additional information, please see our Privacy & Disclosures page.