Most Americans with a 401(k) set it up once and leave it alone. They pick a contribution amount, choose a fund or accept the default, and move on. That autopilot habit is costing many of them a benefit they already have access to.
Fall open enrollment is the one time a year employers ask you to review your benefits. Personal finance expert Suze Orman says if your plan offers a Roth 401(k), this is the moment to look at it.
Vanguard‘s How America Saves 2025 report found that 86% of plans now offer it. Fewer than one in five eligible workers uses it. “That is nuts,” Orman wrote on her website.
What Suze Orman is saying about your 401(k)
“But here’s the part that has me pulling my hair out: Vanguard also reported that fewer than 1 in 5 participants who had this option chose to save in a Roth 401(k). That is nuts,” Orman wrote.
Her recommendation is straightforward. You do not need to move anything you have already saved. “I am not talking about moving all the savings you already have in your 401(k),” she said.
“All that you should change is where your new contributions go.” Just redirect your future payroll deductions into the Roth option. Let those new dollars grow under different tax rules going forward.
“If it’s an option, I sure hope you will consider making the switch for 2026 and beyond,” Orman added.
How a Roth 401(k) differs from a traditional one
The core difference is when you pay taxes. With a traditional 401(k), contributions come out of your paycheck before taxes. That reduces your taxable income now and lowers your current tax bill. When you retire and start taking money out, those withdrawals are taxed as ordinary income.
With a Roth 401(k), you contribute money that has already been taxed. There is no upfront deduction. When you withdraw in retirement, the money comes out tax-free. That includes decades of investment growth.
Orman put a number on it. “With a traditional 401(k), the amount you contribute each year reduces your taxable income,” she said. “For example, if you earn $85,000 and contribute $10,000 to a traditional 401(k), your taxable income from those earnings is reported as $75,000.”
With a Roth 401(k), you keep the full $85,000 reported as income now. But you owe nothing on that $10,000 or its growth when you pull it out in retirement.
Both accounts share the same annual contribution limit. For 2026 that limit is $24,500, with an additional $8,000 catch-up contribution for workers aged 50 and older. Workers between 60 and 63 can make a super catch-up contribution of $11,250. That brings the maximum to $35,750 a year.
One new rule is worth knowing. Beginning in 2026, workers aged 50 or older who earn more than $150,000 must direct all catch-up contributions into a Roth account. That is one reason plan sponsors have moved quickly to add the Roth feature across nearly every plan.
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Why tax-free retirement income matters more than most people realize
A Roth 401(k) does not just save you money on withdrawals. It gives you control over how your retirement income looks to the government.
Traditional 401(k) withdrawals count as taxable income. A larger withdrawal can push you into a higher tax bracket. It can increase the portion of your Social Security benefits subject to tax. It can trigger higher Medicare Part B premiums. All three can hit at the same time.
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Roth withdrawals do not count as income for those purposes, as TheStreet reported. That gives retirees who have built up Roth savings a way to manage their visible income in retirement rather than being forced to take taxable distributions every time they need cash.
That flexibility matters if your spending varies year to year. You can tap Roth savings in years when a traditional withdrawal would push you over a threshold. That keeps your tax bill and Medicare costs lower.
When a Roth 401(k) may not be the right fit for you
Orman’s recommendation is not universal. A traditional 401(k) may still be the better choice if you are currently in a high tax bracket and expect to land in a lower one in retirement. The upfront deduction can be more valuable in that case.
You should also consider your cash flow. Contributing to a Roth 401(k) means paying taxes on that money now. If your budget is already tight, reducing your take-home pay further could create problems that outweigh the long-term benefit.
Many workers do not have to choose one or the other exclusively. Most plans that offer a Roth option also allow you to split contributions between traditional and Roth. Putting money in each creates tax diversification. That gives you more options when deciding what to pull out in retirement and in what order.
To find out whether your plan offers a Roth 401(k), check your plan documents, log into your benefits portal, or contact HR. Open enrollment is the simplest time to make the switch. You redirect future contributions without touching anything already saved.
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