{"id":19849,"date":"2025-08-24T13:12:16","date_gmt":"2025-08-24T13:12:16","guid":{"rendered":"https:\/\/finderica.com\/?p=19849"},"modified":"2025-08-24T13:12:16","modified_gmt":"2025-08-24T13:12:16","slug":"roth-401ks-offer-tax-free-growth-but-few-workers-use-them","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=19849","title":{"rendered":"Roth 401(k)s offer tax-free growth \u2014 but few workers use them"},"content":{"rendered":"
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Marco Vdm | E+ | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n

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For many investors, workplace retirement plans build long-term savings via automatic paycheck deferrals. But most employees don’t make Roth contributions, which can grow tax-free.\u00a0<\/p>\n

Some 86% of retirement plans<\/a>, such as 401(k)s, offered Roth contributions in 2024, but only 18% of investors with the option participated, according to Vanguard’s 2025 analysis of more than 1,400 qualified plans<\/a> and nearly 5 million participants.<\/p>\n

That’s up slightly from 17%<\/a> who made a Roth 401(k) contribution in 2023.<\/p>\n

One reason for low adoption is that plans typically default to pre-tax contributions, meaning investors must switch to the Roth option, experts say.<\/p>\n

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“I don’t know that people understand the benefits of the tax-free growth,” said certified financial planner Jordan Whitledge, lead advisor at Donaldson Capital Management in Evansville, Indiana.\u00a0<\/p>\n

Younger or higher-income investors are more likely to make Roth contributions, according to the Vanguard report.<\/p>\n

Here are some key things to know about Roth 401(k) contributions \u2014 and how to know if this option is right for you.<\/p>\n<\/div>\n

<\/a>How Roth 401(k) contributions work<\/h2>\n
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Most workplace retirement plans offer two choices for employee deferrals: pre-tax or after-tax Roth. (A smaller percentage of plans also offer after-tax contributions, which are different from Roth, and allow big savers to exceed the employee deferral limit.)\u00a0\u00a0<\/p>\n

For 2025, you can defer up to $23,500 into your 401(k), plus an extra $7,500 in “catch-up contributions” if you’re age 50 and older. That catch-up contribution jumps to $11,250 for investors aged 60 to 63.<\/p>\n

While pre-tax contributions offer an upfront tax break, you’ll owe regular income taxes on withdrawals in retirement, depending on your tax bracket.<\/p>\n

Pre-tax funds are subject to required minimum distributions, known as RMDs, or you may face an IRS penalty. The first deadline for RMDs is April 1 of the year after you turn 73, and Dec. 31 is the due date for future years.<\/p>\n<\/div>\n

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By comparison, Roth contributions are after-tax, but your balance grows tax-free. For Roth accounts, the original account owner won’t face RMDs, but certain heirs are subject to the 10-year rule, meaning the account must be emptied within 10 years of the original owner’s death.<\/p>\n

For some investors, especially for those with a large pre-tax balance, RMDs can be a pain point in retirement, Whitledge said.<\/p>\n

This can also be an issue for heirs who may have to empty pre-tax accounts and boost their adjusted gross income during their peak earning years, experts say.<\/p>\n<\/div>\n

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<\/a>Pre-tax vs. Roth contributions<\/h2>\n
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While tax-free growth may be appealing, you should consider your broader tax plan before picking Roth contributions, experts say. \u00a0 <\/p>\n

“Many financial advisors recommend a mix if possible, but prioritizing based on your current tax bracket and expected future rates,” said CFP Mike Casey, president of American Executive Advisors in McLean, Virginia.<\/p>\n

If you expect higher tax rates in retirement, “Roth options shine for locking in today’s rates,” he said.\u00a0<\/p>\n<\/div>\n<\/div>\n

Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Marco Vdm | E+ | Getty Images For many investors, workplace retirement plans build long-term savings via automatic paycheck deferrals. But most employees don’t make Roth contributions, which can grow tax-free.\u00a0 Some 86% of retirement plans, such as 401(k)s, offered Roth contributions in 2024, but only 18% of investors with the option participated, according to<\/p>\n","protected":false},"author":1,"featured_media":19850,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"rank_math_lock_modified_date":false,"footnotes":""},"categories":[196],"tags":[1493,735,214,1568,2623,2873],"class_list":{"0":"post-19849","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-finance-news","8":"tag-401ks","9":"tag-growth","10":"tag-offer","11":"tag-roth","12":"tag-taxfree","13":"tag-workers"},"_links":{"self":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/19849","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=19849"}],"version-history":[{"count":0,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/19849\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/media\/19850"}],"wp:attachment":[{"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=19849"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=19849"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=19849"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}