Nearly 1 in 5 Gen Z Workers Are Using This Account to Save for Retirement — Surpassing Other Generations

Why Roth 401(k)s Are So Valuable For Younger Workers

A Roth 401(k) is similar to a traditional 401(k) plan. Both are tax-advantaged accounts that let you save for retirement. These plans are employer-sponsored, and employees can choose from a variety of investment options. Employees choose a percentage of their pay to contribute, and that amount is taken out of each paycheck.

However, the tax treatment is the primary difference between the two types of accounts. Contributions to a traditional 401(k) are made pre-tax, meaning you get an upfront tax benefit. Your investment earnings grow tax-deferred, and then you pay taxes on earnings and withdrawals when you take the money out in retirement.

Conversely, you receive no upfront tax benefit on your contributions to a Roth 401(k). However, any income earned from the account, including interest, dividends, and capital gains, is tax-free when you withdraw it in the future.

Who Is Using a Roth 401(k) and Why

Gen Z workers are more likely to contribute to a Roth 401(k) compared to older workers, according to a report from Fidelity.

Percentage of workers who contributed to a Roth 401(k):

• Gen Z workers: 19.4%
• Millennials: 19%
• Gen Xers: 15.3%
• Baby Boomers: 12.8%

It can make sense for younger workers to opt for a Roth 401(k) and pay taxes on their contributions now, while they’re in a lower tax bracket, particularly since they won’t receive much of an upfront tax break by contributing to a 401(k). Also, with a Roth 401(k), those funds grow tax-free, and distributions later in life will also be tax-free at a time when they’re likely to be in a higher tax bracket.

Members of Gen X and Baby Boomers, however, are likely much farther along in their careers and earning higher salaries. Their tax rates are higher than Gen Z and Millennial workers, so it makes sense for them to delay paying taxes until they are retired, when their income, and thus their tax bracket, is likely to be lower.

Should I Convert to a Roth 401(k)?

If you have been saving in a 401(k) plan, it’s possible to convert that plan to a Roth 401(k). However, you want to make sure that a conversion is the best choice for you.

1. Do you expect to be in a higher tax bracket in retirement than you are now? Ideally, you want to be paying tax on your retirement savings when you are in a lower tax bracket.
2. Can you afford to pay tax on the conversion in cash? If you’ve been putting money in a traditional 401(k), you haven’t paid taxes on those contributions, so you’ll owe income tax on the amount of the conversion. Many retirees opt to pay this tax in cash, rather than paying it out of the 401(k) itself and losing out on years of compound growth.
3. Does your employer’s plan allow you to convert an existing 401(k) to a Roth 401(k)? Not all plans have a Roth option or allow conversions to a Roth 401(k).

If you answered yes to the above questions, converting a traditional 401(k) to a Roth 401(k) might be a good choice for you. To complete a conversion, you will need to talk to your plan administrator, as the process and paperwork can vary from plan to plan.

If your employer has a Roth 401(k) option but doesn’t allow conversions, you can still open a Roth account in addition to a traditional 401(k). You are allowed to contribute to both accounts in the same year. However, the total you contribute across both accounts can’t exceed the annual limits. In 2025, this limit is $23,500, plus an additional $7,500 catch-up contribution if you are over age 50.

The Bottom Line

Nearly 20% of Gen Z workers, and 19% of millennial workers, contribute to a Roth 401(k). Contributions to this type of employer-sponsored retirement account are not tax-deferred. You pay tax when you earn the money before contributing and then you can make withdrawals tax-free in retirement.

A Roth 401(k) can be a good choice for younger workers currently in a lower tax bracket than they will likely be in retirement. If you have a 401(k) but think you will pay a higher tax rate in retirement, it might make sense to talk to your plan administrator about converting your traditional 401(k) to a Roth 401(k).