If the Roth Is So Magical, Why Doesn’t Everybody Have One?
A Roth 401(k) is an employer-sponsored retirement account that allows you to contribute after-tax dollars and enjoy tax-free withdrawals in retirement. While 93% of 401(k) plans offer a Roth 401(k) option, only around 16.2% of eligible participants choose to contribute, according to Fidelity. Yet almost everyone who qualifies should consider a Roth. While some may think their income is too high to qualify, that’s only true for regular Roth IRAs. There are no income limits for Roth 401(k), 403(b), TSP, etc. established through an employer. High-income earners can still get a Roth via Roth conversions, which are ideal in low-income years. We can help calculate if a partial conversion makes sense.
There are several key differences between traditional IRAs and a Roth. While contributions to traditional IRAs are made pre-tax, Roth IRA contributions are after-tax. Conversely, withdrawals from traditional IRAs are taxable, while Roth withdrawals are not. Traditional IRAs require distributions beginning at age 73, while there are no required distributions from a Roth IRA during the investor’s lifetime. And unlike traditional IRAs, Roths offer a high level of tax-planning flexibility.
There are numerous reasons why Roth IRAs are perfect for young professionals, including paying taxes at a lower rate, and taking advantage of compound interest and decades of tax-free growth. Roth IRA conversions also offer advantages to seniors, such as avoiding required taxable distributions at age 73 and reducing overall tax burdens.
The One Big Beautiful Bill Act has implications for investors. While the act does not make any changes to IRAs or Roths, the expansion of the state and local tax (SALT) deductions could potentially lead to more Roth conversions. For those who itemize, the SALT deduction is increased to $40,000, effective for 2025 through 2029, with a 1% increase each year. In addition, some pass-through business owners can work around the $40,000 limitation and get unlimited SALT deductions. Please consult your tax professional.
As founder and CIO of Campus Private Wealth, Bill Milby brings nearly four decades of experience, built from the ground up, to every client conversation. Known for his no-nonsense approach (“no robo portfolios, no cookie-cutter financial plans”), he’s earned a reputation for clear, personal and strategic financial guidance.
Awards/Honors:
Arlington Magazine “Face of Investment Management” 2025