Young Investors Should Consider a Roth 401(k)

This CNBC feature spotlights a growing trend: younger savers opting for Roth 401(k)s over traditional plans, hoping to lock in future tax savings by choosing to pay taxes now rather than in retirement. With Roth 401(k)s, your contributions are made with after-tax dollars, which means your investments grow tax-free — and, so long as the rules are followed, qualified withdrawals in retirement aren’t taxed at all.

The article highlights how today’s workers, especially those early in their careers, are likely in lower tax brackets now than they will be decades from now. That’s why making after-tax Roth contributions can potentially mean paying a smaller tax bill over your lifetime, especially if your income and tax rate rise as your career progresses. Analysts note that young investors benefit most from Roth accounts’ decades-long runway for tax-free compounding, giving those dollars maximal growth potential — and maximal tax savings down the road.

In the piece, I share with CNBC that there’s more to the Roth-versus-traditional debate than tax rates alone. I always remind clients that tax diversification — having a mix of pretax (traditional) and after-tax (Roth) accounts — provides “options and flexibility when it’s time to withdraw.” Even if you think your tax rate will be higher in the future, having both types of savings lets you strategize withdrawals to keep your total tax bill low, regardless of what future tax law looks like. As I put it: “Young investors, in particular, should strongly consider Roth accounts when they have the luxury of time on their side. Tax-free growth over decades can be a powerful engine for wealth building — and tax-free withdrawals in retirement provide certainty no matter how Congress tinkers with tax rates in the years ahead.”

The article also calls out how legislative changes in recent years have made Roth 401(k)s more accessible through employers, and many plans now offer automatic Roth contribution features — yet uptake is still relatively low, often because inertia or lack of understanding keeps defaults set to traditional pretax. Financial advisors in the story urge young workers to “spend five minutes reviewing your enrollment forms” to make sure you’re not missing out on a potentially game-changing tax advantage.

Bottom line:

For young investors serious about building lasting, tax-efficient wealth, the Roth 401(k) is a powerful tool — especially in today’s uncertain tax environment. As I emphasize to my clients, combining a Roth with traditional savings is usually the best route for flexibility and opportunity as your career — and tax picture — unfolds. Don’t leave tax-free compounding (and future options) on the table just because you missed the fine print at enrollment.