If you have a 401(k) through work, there's a chance your employer offers a Roth 401(k) option — and it's becoming more common. According to Vanguard, 86% of their 401(k) plans included a Roth feature at the end of 2024. That's up from 74% just four years earlier. Among larger plans, the feature is even more widespread, with 95% offering it.
Yet despite this availability, fewer than 1 in 5 participants in these plans actually choose to contribute to a Roth 401(k). Finance expert and author Suze Orman said "this is nuts" in a recent blog post, highlighting what she sees as a missed opportunity for many workers.
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Understanding the Difference Between Traditional and Roth 401(k)s
The main distinction between a traditional 401(k) and a Roth 401(k) is when you pay taxes. With a traditional 401(k), your contributions reduce your taxable income for the year. Orman shared this example:
If you earn $85,000 and contribute $10,000, only $75,000 is considered taxable income. The catch is that withdrawals in retirement are taxed as ordinary income, and you must start taking required minimum distributions at a set age — 73 if you were born between 1951 and 1959, and 75 for those born in 1960 or later.
A Roth 401(k) works differently. Contributions are made with after-tax dollars, meaning you don't get an immediate tax break. However, withdrawals in retirement are completely tax-free, and there are no required minimum distributions. This can give retirees more flexibility with their income, potentially lowering taxes on Social Security benefits and even Medicare premiums.
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Why Orman Says More Workers Should Consider the Roth Option
Orman says that anyone who has primarily contributed to a traditional 401(k) should consider allocating future contributions to a Roth 401(k). She adds that even if you've been saving for years, shifting new contributions can provide a significant tax advantage later on.
"I have nothing against traditional 401(k)s," she wrote. "But for those of you who have spent years saving in a Traditional 401(k), it would be so smart to now focus on building up savings in a Roth 401(k)."
Having a mix of tax-deferred and tax-free retirement savings can also help manage your overall tax burden in retirement. Orman pointed out that Roth contributions can keep taxable income lower, which may reduce the portion of Social Security that is subject to tax and could help keep Medicare Part B premiums from rising.
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Making the Switch During Open Enrollment
Many employers hold open enrollment in the fall, giving employees a chance to review benefits for the coming year. If a Roth 401(k) is available, Orman said this is the perfect time to consider directing your 2026 contributions there. She adds that you don't need to move existing funds — just decide where new contributions will go.
Even a small change can add up over time, thanks to compounding growth. The Roth 401(k) is not right for everyone, but for many workers, especially those expecting to be in a higher tax bracket in retirement, it can be a smart way to build tax-free savings.
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