82% of 401(k)s Now Offer This One Benefit That Could Make Your Retirement Easier

There’s a benefit to saving for retirement in a workplace retirement plan. With an IRA, you have to remember to send money into that account on a regular basis. With a 401(k), your contributions are taken as payroll deductions automatically. All you need to do is sign up, and your employer will make sure that your retirement account is funded on a regular basis. That makes you more likely to stay on track with your savings efforts.

Many savers opt to build their nest eggs using a traditional 401(k). And the benefit there is getting a tax break on the money you put in.

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But a growing number of 401(k) plans are offering a Roth savings option. And if yours has one, it pays to take advantage.

Roth 401(k)s are becoming more popular

In 2019, an estimated 74% of 401(k) plans offered a Roth savings feature, says Vanguard. By 2023, that number had grown to 82%. And among larger plans, 95% of 401(k)s made a Roth available. This tells us that employers are clearly increasingly understanding how beneficial it is to offer a Roth savings option.

The benefits are outstanding

Why would you save in a Roth 401(k) and give up the tax-free contributions a traditional 401(k) gives you? It’s simple. You can enjoy a world of benefits despite forgoing that initial tax break.

With a Roth 401(k), your investment gains are yours to enjoy tax-free. Say you contribute a total of $100,000 to your retirement plan and it grows to $1 million over time. That’s $900,000 in earnings you won’t have to pay the IRS a dime on.

Plus, Roth 401(k)s give you the benefit of tax-free withdrawals in retirement. Even if you enter your senior years with a decent-sized nest egg, you may be looking at a smaller income than you had during your working years. Not having to pay taxes on retirement plan withdrawals in that scenario is huge.

You should also know that Roth 401(k)s underwent a big change in 2024 — and a positive one at that. Effective this year, Roth 401(k)s no longer require savers to take required minimum distributions.

So now, with a Roth 401(k), you can let your money sit and grow tax-free during retirement for as long as you want. That also means that if desired, you can incorporate your Roth 401(k) into your estate planning strategy by leaving some of that money to your loved ones.

It pays to explore your options

If you’re not sure whether your company’s 401(k) offers a Roth savings feature, just ask your benefits department. You should also know that you don’t necessarily have to choose between a traditional 401(k) and a Roth.

If you want the tax break that comes with the former, you could partially fund a traditional employer plan and put some of your money into a Roth as well. This gives you the best of both worlds by allowing you to shield some of your income from the IRS at present, but also enjoy more flexibility down the line.