Roth or Regular?

Roth or Regular? Navigating Your 2026 Retirement Strategy 

According to recent industry data, over 80% of employers now offer a Roth 401(k) option alongside the traditional pre-tax plan. Yet, many employees still default to the traditional route. With new regulations taking effect this year under the SECURE 2.0 Act, understanding the “Roth vs. Regular” debate is more important than ever for your tax strategy and retirement flexibility. 

The Basics: Pay Now or Pay Later? 

The primary difference between a Traditional and Roth 401(k) is when you pay the taxes. 

• Traditional 401(k): Contributions are made pre-tax, reducing your taxable income today. However, your withdrawals in retirement (including all growth) are taxed as ordinary income. 

• Roth 401(k): Contributions are made with after-tax dollars. While there’s no immediate tax break, your future withdrawals (including every cent of investment earnings) are 100% tax-free, provided you meet certain requirements. 

New for 2026: The “Roth Mandate” and Higher Limits 

The IRS has updated contribution limits for 2026, and the SECURE 2.0 Act introduces significant changes for “catch-up” contributions. 

1. 2026 Contribution Limits

• Standard Limit: You can contribute up to $24,500 (up from $23,500 in 2025). 

• Age 50+ Catch-Up: If you are age 50 or older, you can contribute an additional $8,000, for a total of $32,500. 

• Optional “Super Catch-Up” Provision: For participants aged 60, 61, 62, or 63, the catch-up limit increases to $11,250, allowing for a total contribution of $35,750. 

2. Mandatory Roth Catch-Ups for High Earners Starting January 1, 2026, a major SECURE 2.0 provision kicks in: If your prior-year wages (specifically Box 3 FICA wages on your 2025 W-2) exceeded $150,000, any catch-up contributions you make must be designated as Roth. This means you can no longer make these extra contributions on a pre-tax basis if you fall into this income bracket. 
3. Optional Employer Match Provision Traditionally, employer matching funds were always pre-tax. However, thanks to SECURE 2.0, employers may now allow you to receive their matching contributions as Roth (after-tax). Keep in mind that if you choose this, the match amount will be included in your taxable income for the year it’s deposited. 

Note: Optional provisions from the SECURE 2.0 Act may not be adopted by your specific plan. Check with your Plan Sponsor or Third-Party Administrator to determine if the options are available to you. 

Flexibility and Withdrawals 

The Roth 401(k) offers a distinct advantage regarding Required Minimum Distributions (RMDs). 

While traditional 401(k) holders must begin taking RMDs at age 73, Roth 401(k) accounts no longer require RMDs during the owner’s lifetime. This allows your money to remain in the account, potentially growing tax-free for as long as you choose. 

Note: To ensure your Roth withdrawals are tax-free, the account must have been open for at least five years, and the withdrawal must occur after you reach age 59½, become disabled, or pass away. 

Which Feels Right for You? 

• Choose Traditional if you are currently in your peak earning years and expect to be in a lower tax bracket during retirement. 

• Choose Roth if you believe tax rates will rise in the future or if you want to create a pool of “tax-free” wealth to manage your income levels in retirement.
   

Unless you’re within a year or two of retiring, you won’t know for certain what tax bracket you’ll be in during retirement. Many savers choose to diversify, splitting their contributions between both options to hedge against future tax changes. Contact Heartland Trust Company if you’d like to speak with someone about how these contribution options would affect your specific financial situation or wonder how the Secure 2.0 provisions will affect you.