5 Reasons Your Employees Will Love a Roth 401(k)

If your team isn’t using the Roth 401(k) option in your company’s retirement plan—or if you haven’t added one yet—it might be time to take a closer look. A Roth 401(k) can be a game-changer for your employees’ financial future. It’s simple, smart, and packed with benefits that can help them retire with more freedom and less stress. Let’s break it down.

What Is a Roth 401(k), Anyway?

A Roth 401(k) is a type of retirement account. The big difference? It’s all about when you pay taxes.

• Traditional 401(k): You put in money before taxes, then pay taxes when you take it out in retirement.
• Roth 401(k): You pay taxes now, but your money grows tax-free—and you don’t pay taxes when you withdraw it later.

Having both types of accounts gives your employees more control over their taxes in retirement. That’s a win.

Why a Roth 401(k) Is Better Than a Roth IRA

Some employees might think they can just open a Roth IRA on their own. But a Roth 401(k) through your company offers some serious perks they can’t get elsewhere.

1. No Income Limits

High-earners can’t always contribute to a Roth IRA. But with a Roth 401(k), there are no income limits. That means everyone on your team—no matter how much they make—can take advantage of tax-free growth.

2. Higher Contribution Limits

That’s a huge difference—and a huge opportunity to save more for the future.

3. Employer Match Still Applies

If your company offers an employer match, employees still get it—even if they contribute to the Roth side. The match goes into a traditional (pre-tax) account, but it’s still free money. And who doesn’t love that?

Why Younger Employees Should Pay Attention

Roth 401(k)s are especially great for younger workers or those early in their careers. Here’s why:

• They’re likely in a lower tax bracket now.
• That means they pay less tax today on their contributions.
• Their money has decades to grow tax-free.

By the time they retire, that tax-free growth could be worth a lot—and they won’t owe a penny in taxes on it.

Smart Tax Planning = More Flexibility Later

Roth 401(k)s give employees more ways to manage their taxes in retirement. They can mix and match withdrawals from both Roth and traditional accounts to keep their taxable income low. This can help them: stay in a lower tax bracket, avoid higher Medicare premiums, and qualify for income-based programs or subsidies.

Lower Taxable Income in Retirement

Here’s a little-known bonus: Roth withdrawals don’t count toward your Adjusted Gross Income (AGI). That’s important because AGI affects things like health care subsidies, social security taxes, and Medicare costs. So, having Roth income in retirement could mean more benefits and fewer costs—especially for early retirees who aren’t on Medicare yet.

Final Thoughts: Make Roth 401(k)s Easy to Understand

If you already offer a Roth 401(k), make sure your employees know about it. Talk about it in meetings, send out reminders, and explain the benefits in simple terms. If you don’t offer one yet, it’s worth considering. It’s a powerful tool that can help your team build wealth, reduce taxes, and retire with confidence.

Need help explaining it to your team? We’ve got your back. Let’s chat about how to make your retirement plan work even harder for your employees.