Are you Taking Advantage of your Roth 401(k)?

Many company retirement plans today include a Roth 401(k) option, but surprisingly, a lot of employees don’t take advantage of it. In some cases, they may not even know it’s available. In others, it may simply feel easier to stick with the traditional 401(k) contribution they’ve always made. If your plan offers a Roth 401(k), it’s worth understanding what it is, how it works, and why it could be a valuable part of your long-term financial picture.

What Is a Roth 401(k)?

A Roth 401(k) is similar to a traditional 401(k), but the key difference is when you pay taxes.

• Traditional 401(k): Contributions are made before taxes, which lowers your taxable income now. You’ll pay taxes later when you withdraw the money in retirement.
• Roth 401(k): Contributions are made after taxes, meaning you pay taxes on the money today, but qualified withdrawals in retirement are tax-free. This can be a powerful benefit if you expect your tax rate to be the same or higher in the future.

Why You Might Consider the Roth Option

1. Tax-Free Income in Retirement: Once you’ve met the age and time requirements (generally age 59½ and at least five years since your first Roth contribution), all withdrawals, including growth, are tax-free. This can provide flexibility and peace of mind when managing income in retirement.
2.  Younger Workers Can Benefit Most: Paying taxes now may seem like a drawback, but for younger savers who are likely in lower tax brackets today, it can mean decades of tax-free growth later.
3.  Tax Diversification: Having both traditional and Roth savings can give you more control in retirement. You can decide where to draw funds based on your tax situation, which may help manage taxable income more efficiently.
4. Roth Employer Match Option (New): Recent changes under the SECURE 2.0 Act allow some employers to offer Roth matching contributions. If your plan includes this feature and you choose it, those contributions must be fully vested and are taxable to you in the year received. While not all plans offer it, this option can help build more tax-free savings over time. That said, adoption of this feature
   is still relatively new, and many companies have yet to implement it, so be sure to check with your plan administrator.

Considerations Before Choosing the Roth Option

While the Roth 401(k) offers many advantages, it’s not the right fit for everyone. If you expect to be in a lower tax bracket in retirement, traditional contributions may make more sense. Since Roth contributions are after-tax, your take-home pay will be slightly lower today. And not all company plans offer the Roth option, so it’s important to check your plan’s features or speak with your HR department.

How We Help

Choosing between Roth and traditional contributions isn’t just about taxes; it’s about aligning your retirement strategy with your goals, income, and long-term outlook. We help clients review their overall plan, evaluate potential tax implications, and decide whether including Roth contributions could make sense for them.

The Bottom Line

If your employer’s plan offers a Roth 401(k), it’s worth taking a closer look. The opportunity for tax-free income in retirement, combined with the long-term benefits of growth, can be a valuable addition to your financial plan. And remember, it’s not an “either/or” decision; you can contribute to both the traditional and Roth options, giving you flexibility both now and later. If you’d like to review how the Roth 401(k) could fit into your overall retirement strategy, we’re here to help you explore your options.

Securities offered through Valmark Securities, Inc., a member of FINRA/SIPC. Investment Advisory Services offered through Valmark Advisers, Inc., a SEC Registered Investment Advisor, 130 Springside Drive, Suite 300 Akron, Ohio 44333-2431, 1-800-765-5201.

Velekei Giles Financial Advisors is a separate entity from Valmark Securities, Inc. and Valmark Advisers, Inc.

This material is for informational purposes only and is not intended to provide specific advice or recommendations for any individual, nor does it take into account the particular investment objectives, financial situation, or needs of individual investors. This information is not intended for use as tax advice. Persons should consult with their own tax advisors for specific tax advice.