Most companies now accept Roth savings

In recent years, legal changes have increased adoption significantly so that nearly all 401(k) plans now allow workers to save money in Roth accounts.

Roth accounts are funded with after-tax amounts. Savers pay income taxes upfront on their 401(k) contributions, but with some exceptions, they don’t pay taxes later when they withdraw the money.

Financial planners generally recommend Roth savings for workers who are likely to be in a lower tax bracket now than they were in retirement, such as young people early in their careers. Roth 401(k)s are especially beneficial because they allow workers to save more annually than Roth IRAs ($24,500 and $7,500, respectively, in 2026) and there are no income limits associated with Roth IRA contributions.

Almost all employers that offer 401(k) plans now allow workers to contribute to Roth 401(k) accounts. About 96% of plans will allow Roth savings in 2024, according to a recent report from the Plan Sponsor Council of America, an industry group representing employers with workplace retirement plans.

This share is up from 93% a year ago. In 2020, 86% of plans offered a Roth option, up from about 60% in 2015, according to PSCA data.

It found that about 22% of 401(k) savers will contribute to a Roth in 2024, up slightly from 21% the year before.

Workers traditionally save for retirement on a pre-tax basis. That means you get a tax break on your 401(k) contributions now, but you pay taxes later on your savings and investment earnings.

PSCA research director Hattie Greenan said that in past years, offering workers more options has been a big incentive for employers to increase Roth savings.

But a law known as Secure 2.0 has accelerated this trend, she said.

For example, the bill, passed in 2022 under the Biden administration, would require all “catch-up” contributions from high-income earners over age 50 to be made into Roth accounts.

Starting in 2026, if you earned more than $150,000 from your current employer in 2025, you’ll generally need to make catch-up contributions as a Roth.

“This definitely helped push (Roth’s availability) up into the late ’90s,” Greenan said. “If anything, we’ve seen an increase in the north over the last 10 years, but the adoption rate has definitely increased.”

Additionally, the law gave employers the option to offer a 401(k) match on Roth accounts.

About 19% of 401(k) plans have added or are in the process of adding this option in 2024, and one-third of plans are considering it, according to PSCA data.

Philip Chao, a certified financial planner and founder of Cabin John, Maryland-based Experiential Wealth, said the government will likely expand Roth 401(k) access points for workers sooner rather than later to collect more revenue into federal coffers.

“The government’s motivation is clear: We want to collect taxes now, but we’re not going to give everyone a (upfront) tax cut because we need the money,” Chao said.

According to the Congressional Budget Office, by 2025, total U.S. debt will be nearly 100% of gross domestic product. In other words, the US debt is as large as the US economy.

The Tax Policy Center estimates that number will rise to 126% by 2034, worsened by the so-called “One Big Beautiful Bill,” the multitrillion-dollar tax and spending cut package Republicans passed in July.

“Roth (availability) is one way, a very small way, to encourage people not to take tax credits right now,” he said.

Of course, the trade-off is that the government will lose tax revenue later in life, Chao said.

Chao said the decision to save in a Roth account isn’t necessarily a given.

For example, low-income individuals may not currently have enough extra cash to pay taxes on 401(k) contributions, he said. In this case, it may be wiser to pay taxes up front and then pay them in retirement, he said.

However, Chao said households that can afford to do so should consider saving at least a portion of their contributions into a Roth 401(k).

“Everyone’s situation is a little different,” he said. “If you can afford to pay taxes, I think Ross should be a strong candidate.”