Suze Orman Says This Is One Retirement Benefit You Don't Want to Skip

"far too many people who have access to a Roth 401(k) at work are not taking advantage of it. Orman cited data from Vanguard in support of this position, making clear that while 85% of 401(k) plans offer the option to choose a Roth account, fewer than one in five people who have the chance end up participating in a Roth 401(k)."

"Roth 401(k) accounts work differently from traditional IRAs and 401(k) plans. Specifically, they offer the chance to defer your tax savings. Instead of contributing with pre-tax dollars, you make your investments with money that has been taxed. Your investment ends up costing you more when you contribute, because the tax savings is not offsetting the amount of money you are putting away. But the big advantage of the Roth account is that your tax break comes later."

Many eligible workers are not participating in Roth 401(k) options despite wide availability. Data show about 85% of 401(k) plans offer a Roth option, yet fewer than one in five eligible participants choose it. Roth 401(k) contributions are made with after-tax dollars, so contributions cost more today because there is no upfront tax deduction. The primary benefit is tax-free qualified distributions in retirement, which can be especially valuable when living on a fixed income. Access to tax-free retirement distributions provides tax diversification and flexibility for managing retirement income and tax liability.

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