Should you choose a Roth or Traditional 401(k) now that 2025 OBBBA made TCJA tax rates permanent? Learn how it impacts your retirement strategy.
I was recently having coffee with a client I've worked with for nearly a decade. She's a senior HR manager in his early 50s, earns just north of $180,000 a year, and has always defaulted to a Traditional 401(k) because, and I'll quote her directly, "I didn't know what taxes would be in the future, so I'd just get the savings now."
That logic made perfect sense for years. It was the standard play. But then I had to tell her something that changed the entire conversation: the tax rate changes that everyone had been bracing for? They're not coming. The One Big Beautiful Bill Act (OBBBA), signed in 2025, made the Tax Cuts and Jobs Act (TCJA) rates permanent. And because of that, the old "just wait it out" strategy doesn't work the same way anymore.
So if you've been asking yourself whether to put your retirement dollars into a Roth 401(k) or a Traditional 401(k) right now, you're asking exactly the right question at exactly the right time. Let me give you a straight answer and walk you through the reasoning.
The short answer: For most people still in their peak earning years, splitting contributions or leaning into the Roth 401(k) makes more sense today than it did before the OBBBA was signed. But the right choice depends on where you are in your career and what you expect your income to look like in retirement.
"Wait, what exactly changed with the TCJA being made permanent?"
Here's the quick background. The Tax Cuts and Jobs Act passed in 2017 and lowered federal income tax rates across the board. But those cuts were originally set to expire after 2025, which meant tax rates were scheduled to automatically revert to higher levels starting in 2026. A lot of retirement planning conversations over the last several years were built around that looming deadline.
The OBBBA wiped that deadline off the map. The current, lower rates are now permanent law, not a temporary window. That means the 24% tax bracket, which covers 2026 taxable income up to $211,400 for single filers and $403,550 for married filing jointly, isn't going anywhere.
For retirement planning, this is genuinely significant. It removes what I call the "panic Roth" argument, the idea that you should rush to pay taxes now because rates are definitely going up later. That argument no longer holds as a universal truth.
"So does that mean I should just stick with my Traditional 401(k)?"
Not necessarily. Here's where it gets personal.
The Traditional 401(k) gives you a tax deduction today. You contribute pre-tax dollars, lower your taxable income now, and pay ordinary income taxes on the money when you withdraw it in retirement. The Roth 401(k) works the opposite way - you contribute after-tax dollars, get no deduction today, but all qualified withdrawals in retirement, including the growth, come out completely tax-free.
With permanent tax rates, the classic argument for the Roth used to be: "Pay taxes now while rates are low, because they'll be higher later." That argument still holds for a lot of people - just not because of a legislative sunset date. It holds because of your personal income trajectory.
Ask yourself this: Will you be in a higher, lower, or roughly the same tax bracket in retirement compared to today?
- If you expect to step down significantly in income in retirement (say, you're currently in the 32% or 35% bracket and expect to drop to 22%), the Traditional 401(k) still wins on pure tax math.
- If you expect to stay in roughly the same bracket, the Roth 401(k) wins because tax-free growth is a compounding advantage over decades.
- If you're early in your career and expect your income to climb, the Roth 401(k) is almost always the right call.
Fidelity reported in June 2026 that 18.8% of all plan participants are now contributing to a Roth 401(k). Among Gen Z participants specifically, that number has jumped to 21.4%, up from roughly 12% just five years ago. Younger workers are figuring this out.
"I earn over $150,000. Does any of this affect me differently?"
Yes, and this is something I've been talking through with a lot of clients this year.
Under SECURE 2.0 (a major retirement law that took effect over the past couple of years), employees who earned more than $150,000 in the prior year are required to make their catch-up contributions on a Roth basis starting in 2026. This is a mandate, not a choice.
Here's what that means practically. The standard 401(k) contribution limit in 2026 is $24,500. If you're 50 or older, you can add a catch-up contribution of $8,000, bringing your total to $32,500. If you're between ages 60 and 63, SECURE 2.0 created what's called a "super catch-up" - you can contribute an additional $11,250, for a total of $35,750.
For those earning over $150,000, every dollar of that catch-up has to go into the Roth bucket. That's after-tax money. It doesn't reduce your taxable income today. This caught a number of my clients off guard when I brought it up, because they'd been planning their withholding and quarterly estimates based on the old assumption that all their 401(k) contributions were pre-tax.
I had a client, a physician in her early 60s, who was absolutely blindsided by this when we reviewed her situation earlier this year. She was counting on the full deduction from her catch-up contributions to offset some significant consulting income. When I explained the mandatory Roth rule, we had to completely rework her estimated tax payments for the year. Not a disaster, but a real planning disruption that could have been avoided with earlier awareness.
If you're in this income range, this is not a detail to file away for later. It needs to be on your radar now.
"Is the Roth 401(k) better for leaving money to my kids?"
This is one of my favorite angles to discuss, and honestly, it's underappreciated.
One of the biggest advantages of the Roth 401(k) - and this is a change that came with SECURE 2.0 - is that it no longer requires Required Minimum Distributions (RMDs) during your lifetime. RMDs are the IRS-mandated withdrawals that force you to start pulling money out of your retirement accounts whether you need to or not, which can push you into a higher bracket and create a tax headache in retirement.
Traditional 401(k)s still require RMDs. Roth 401(k)s do not. That means a Roth 401(k) can sit and compound tax-free for your entire lifetime if you don't need the money.
And unlike the Roth IRA - which starts phasing out for single filers earning above $153,000 in 2026 - the Roth 401(k) has no income limits. High earners who can't contribute directly to a Roth IRA can still fund a Roth 401(k) to the full limit.
Combine permanent estate tax exemptions (also locked in under OBBBA) with a Roth 401(k) that compounds tax-free, never forces withdrawals, and has no income cap, and you've got a serious multi-generational wealth tool.
I had a client a few years back who built up a very healthy Traditional 401(k) balance over a 35-year career. He retired, felt fine financially, and didn't really need the RMDs - but he had to take them anyway. It pushed his income up, increased his Medicare premiums, and partially subjected his Social Security benefits to taxation. The Roth 401(k) doesn't put you in that box.
"What if I just can't decide? Is there a middle path?"
Absolutely, and for many people it's the right move.
Splitting contributions between a Traditional and a Roth 401(k), sometimes called a "tax diversification" strategy, hedges your bets. You're building two pools of retirement money: one that's taxable on withdrawal, one that isn't. That gives you flexibility in retirement to manage your taxable income strategically, which becomes valuable when you're navigating RMDs, Social Security, and Medicare premium thresholds all at once.
Vanguard's most recent "How America Saves" report (July 2026) noted that the average 401(k) balance hit an all-time high of $167,970 at the end of 2025. That's encouraging, but the same data from January 2026 showed that only 14% of participants max out their contributions, while nearly 49% of top-tier high-income earners do. The gap isn't just about income, it's about planning.
The 2026 base limit is $24,500. If you're 50 or older, you've got room for $32,500. Ages 60-63, up to $35,750. These numbers are meaningful and using them well, across both account types, is where real retirement security gets built.
If you're trying to sort out whether the Roth 401(k), Traditional 401(k), or some combination is right for your specific situation, I'd genuinely enjoy talking through it with you. After 30-plus years of doing this work, I still find that the best financial decisions come from sitting down, looking at the full picture, and building a strategy that fits the actual person - not a generic template.
Feel free to reach out and schedule a conversation. No pressure, no pitch - just clarity.
Cetera Advisors LLC exclusively provides investment products and services through its representatives. Although Cetera does not provide tax or legal advice, or supervise tax, accounting or legal services, Cetera representatives may offer these services through their independent outside business. This information is not intended as tax or legal advice.