A Roth 401(k) is a kind of hybrid between a Roth IRA and a 401(k), with some rules from each kind of plan. Similar to a Roth IRA, an employee makes post-tax contributions, and any earnings grow potentially tax-free.2 But the contributions are made through regular payroll deductions and have the same limits as a tax-deferred 401(k), which are $20,500 for 2022, with catch-up contributions of $6,500 for those over 50.
If you take withdrawals before reaching age 59½ (either because you leave your company or because they allow in-service distributions), your contributions will not be subject to tax, but you must take out a proportional amount of any growth on those dollars, and this may be subject to taxes and early withdrawal penalties if it isn't rolled into another Roth 401(k) account or Roth IRA.
In next blogpost, we will discuss what are the pros and cons of Roth 401K.