I Make $135k a Year and My Company Is Offering a 401k or a Roth 401k – Which One Should I Pick?

In a Reddit post on the r/personalfinance forum, an important question surfaced. The poster earns $135,000 annually at a job that offers both a traditional 401(k) and a Roth 401(k). The company matches contributions, but those matching funds do not vest for five years and are forfeited if the employee leaves before then. Expecting to leave before the vesting window closes, the poster wondered: why contribute to the workplace plan at all?

The follow-up question was whether to stick with either workplace option or simply open a personal Roth IRA instead. A financial advisor who understands someone’s full picture is always the best resource for that kind of decision. Even so, some general guidance can help frame the choice before that conversation begins.

Roth 401(k) or traditional 401(k): how each one works

The choice between a traditional and a Roth 401(k) comes down to one thing: when you pay taxes. The two accounts work as mirror images of each other.

• A traditional 401(k) accepts pre-tax contributions, so money goes in before income tax is applied. The IRS defers taxes until withdrawal, at which point distributions are treated as ordinary income. Account holders must also begin taking Required Minimum Distributions at age 73.
• A Roth 401(k) is funded with after-tax dollars, meaning there is no upfront tax break. The payoff comes later: qualified withdrawals in retirement are entirely tax-free. Roth 401(k)s are exempt from Required Minimum Distribution rules, and those distributions do not count toward the income thresholds that can make Social Security benefits taxable.

The core trade-off is timing: pay taxes now, or pay taxes later. A saver whose retirement tax rate will likely exceed today’s benefits from locking in the current rate through a Roth 401(k). A saver expecting to land in a lower bracket in retirement gets more mileage from deferring taxes through the traditional option.

The math on $135,000

A single filer earning $135,000 sits firmly in the 24% federal marginal tax bracket for 2026. After subtracting the $16,100 standard deduction, taxable income lands at roughly $118,900, well inside the 24% band that spans from $105,700 to $201,775 for single filers, per IRS Revenue Procedure 2025-32. The One Big Beautiful Bill Act, signed in July 2025, permanently extended the higher TCJA-era deduction levels that underpin this figure.

• Choosing a Traditional 401(k) and maximizing the $24,500 elective deferral cuts taxable income by the full contribution amount, saving up to $5,880 in federal taxes at the 24% marginal rate. That freed-up cash can then be redirected into a taxable brokerage account or used elsewhere.
• Choosing the Roth 401(k) is a calculated bet that the effective tax rate in retirement will exceed 24%. That scenario is uncommon unless the saver anticipates substantial taxable income in later years, such as rental revenue from real estate or distributions from a traditional pension.

One additional wrinkle: at $135,000, an active workplace plan participant falls inside the 2026 traditional IRA deduction phase-out for single filers, which runs from $81,000 to $91,000 of modified adjusted gross income. That means a deductible traditional IRA is off the table at this income level, which makes the Roth IRA comparison even more relevant.

Thinking carefully about when taxes are cheapest helps a saver choose the account that minimizes the total bill paid over a lifetime.

The new Roth catch-up mandate

A significant SECURE 2.0 Act provision took effect on January 1, 2026. Any worker whose FICA wages exceeded $150,000 in the prior calendar year must now make all age-50-or-older catch-up contributions on a Roth (after-tax) basis. Workers at employers that do not yet offer a Roth 401(k) option cannot make any workplace catch-up contributions at all until the plan is updated. At $135,000 today, this requirement does not yet apply, but it is worth monitoring as income climbs toward that threshold.

The Mega Backdoor Roth

Before walking away from a workplace plan in favor of an outside account, it is worth reviewing the plan’s Summary Plan Description to see whether the employer allows after-tax contributions (separate from standard Roth deferrals) and in-service distributions. When both features are available, the Mega Backdoor Roth lets high earners contribute far beyond the standard deferral ceiling. For 2026, the total annual addition limit for a 401(k) combining employee and employer contributions is $72,000, up from $70,000 in 2025. Converting after-tax contributions up to that ceiling into tax-free Roth growth remains one of the most underused wealth-building tools available through corporate retirement plans.

2026 contribution limits at a glance

The IRS raised most retirement plan ceilings for 2026. The standard 401(k) deferral climbed to $24,500, up $1,000 from 2025, while the IRA contribution limit rose to $7,500, a $500 increase. Workers aged 50 and older can add an $8,000 catch-up to their 401(k), and those turning 60 to 63 during the year qualify for an enhanced “super catch-up” of $11,250. For IRA savers 50 and older, the catch-up rose to $1,100 under SECURE 2.0’s new inflation-indexing rule, bringing the total IRA ceiling for that group to $8,600.

• Standard 401(k) deferral: $24,500 (up $1,000 from 2025)
• IRA contribution limit: $7,500 (up $500 from 2025); age 50+ can add a $1,100 catch-up, bringing the total to $8,600
• Age 50+ catch-up (401(k)): $8,000
• Age 60 to 63 “super catch-up” (401(k)): $11,250

Workplace plan or an independent account?

The Reddit poster was skeptical of the workplace plan precisely because the matching funds would not vest before they expected to leave the job. That skepticism pointed them toward opening a personal Roth IRA instead.

An independent account carries real advantages. The saver controls the brokerage, sidesteps the paperwork of rolling over an account after a job change, and gains access to a far wider investment menu than a typical 401(k) plan offers. There is also a key income point: at $135,000, this poster falls below the 2026 Roth IRA phase-out range for single filers, which begins at $153,000 and closes at $168,000. A direct Roth IRA contribution is fully available at this income without any backdoor strategy.

Even so, walking away from an employer match is almost never the right call. A match is free money, and the standard rule of thumb is to contribute at least enough to capture it before directing savings elsewhere. The poster expects to leave before vesting, but plans shift. Staying longer than anticipated and forfeiting the match by choice would be a costly mistake.

The downside of contributing enough to earn the match is limited. In the worst case, the employee leaves early, rolls their own contributions into a Roth IRA, and simply leaves the unvested employer dollars behind. In the best case, they stay, vest, and those employer contributions add meaningfully to their retirement balance. Contributing the minimum needed to capture the full match is a sound baseline in almost every scenario.

Ultimately, the right answer depends on individual goals and circumstances. For most people in this situation, participating in the workplace plan and selecting whichever option provides the greatest long-term tax advantage is a reasonable starting point on the path toward financial security. A financial advisor can help work through the specifics.

Editor’s note: This revision added context on the 2026 traditional IRA deduction phase-out range for active plan participants ($81,000 to $91,000 for single filers), which is relevant at a $135,000 income and removes the deductible traditional IRA as an option. The redundant section heading “The advanced play: Mega Backdoor Roth and the 2026 Roth mandate” was consolidated, and the contribution limits section was rewritten in narrative form. All 2026 IRS figures were confirmed against IRS IR-2025-111 and IRS Notice 2025-67.

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