Why So Few Americans Use Roth Accounts — And What You Can Learn from It

The Roth Paradox: A Powerful Tool Few People Use

Roth retirement accounts are often described as the holy grail of investing. They offer tax-free growth, tax-free withdrawals in retirement, and even a tax-free inheritance for beneficiaries. Unlike traditional accounts, Roths also have no required minimum distributions (RMDs), giving retirees more flexibility and control over their money.

And yet, despite these well-known advantages, the number of Americans actually using Roth accounts remains surprisingly low. Data from Fidelity, one of the largest retirement plan administrators in the United States, shows that adoption rates are lagging across all generations.

The Numbers Behind the Roth Adoption Gap

According to Fidelity’s data:

• Baby Boomers: Around 12% use a Roth 401(k).
• Gen X: Approximately 14.5%.
• Millennials: Just over 18%.
• Gen Z: About 18% as well.

Even though younger generations are showing slightly higher adoption, fewer than one in five workers are contributing to a Roth 401(k). When it comes to Roth IRAs—accounts opened individually rather than through employers—the numbers improve slightly but still aren’t remarkable:

• Baby Boomers: 24%
• Gen X: 21%
• Millennials: 29%
• Gen Z: 25%

Despite years of financial education campaigns and media enthusiasm around the Roth, most people still aren’t using it. Why?

1. Awareness and Misconceptions

One of the biggest barriers is simply awareness. Many employees don’t even realize their workplace 401(k) plan offers a Roth option. The word “Roth” is often associated solely with the Roth IRA, not the Roth 401(k).

This confusion extends to the rules as well. People frequently mix up Roth IRA and Roth 401(k) requirements:

• Roth IRAs have income limits and lower contribution caps (currently $7,000 annually if under age 50).
• Roth 401(k)s, on the other hand, have no income limits and allow contributions up to $23,500 in 2025—the same as traditional 401(k)s.

That means even high earners making over $400,000 a year can still contribute to a Roth 401(k). Unfortunately, many don’t realize it’s an option available to them.

2. Defaults and Human Inertia

Most people don’t make active financial decisions—they go with whatever default option their employer sets up. Historically, workplace plans have defaulted employees into traditional 401(k)s, not Roths.

With the SECURE 2.0 Act, new retirement plans beginning in 2025 will include automatic enrollment and automatic contribution increases. Research shows that participation jumps from about 67% to 94% when automatic enrollment is used. However, the law doesn’t specify whether employees should be defaulted into the Roth or the traditional option.

That means most companies will likely continue defaulting workers into the traditional pre-tax version, and roughly 90% of employees stick with that default. Unless workers actively switch, they’ll never experience the Roth advantage.

3. Tax Psychology and Real-Life Tradeoffs

The biggest mental barrier for many savers is tax psychology—how we perceive paying taxes now versus later.

• Roth contributions are made with after-tax money. You pay taxes today but get tax-free growth and withdrawals in retirement.
• Traditional contributions are made with pre-tax money. You save on taxes now, but every withdrawal in retirement is taxable income.

The Roth option is especially beneficial for younger workers who are likely in lower tax brackets and have decades of growth ahead. But in reality, many millennials and Gen Zers find it difficult to part with extra cash in the present.

Consider a simple example:

A worker earning $70,000 contributes $500 a month to a retirement account.

• Roth 401(k): Take-home pay drops from about $4,800 to $4,300.
• Traditional 401(k): Take-home pay drops to about $4,400.

That $100 monthly difference may seem small, but for someone paying daycare costs or juggling rising living expenses, it can be significant. The short-term pain of higher taxes today often outweighs the long-term gain of tax-free withdrawals decades later.

Fast-forward to retirement:

• A $500,000 Roth account is completely tax-free.
• A $500,000 traditional account is only worth about $440,000 after accounting for a modest 12% tax rate.

The difference is clear—but not always emotionally persuasive when you’re trying to stretch your paycheck today.

4. High Earners and Strategic Timing

For high earners, the traditional account can sometimes make more sense. Contributing pre-tax lowers your taxable income now, which can be especially valuable during peak earning years.

If someone expects to be in a lower tax bracket in retirement, deferring taxes until then is often the smarter move. The key is flexibility—your strategy can and should evolve over time.

Early in your career, a Roth might make the most sense. Later, as your income rises, traditional contributions could be more beneficial. By retirement, having both Roth and traditional “buckets” gives you the flexibility to manage taxable income more efficiently.

Ultimately, the goal isn’t just to minimize taxes this year—it’s to minimize taxes over your lifetime.

5. Employer Matches and New Rules

Until 2024, employer matching contributions were always made on a pre-tax basis, even if employees contributed to a Roth. That created a confusing hybrid account structure.

Starting in 2025, thanks to SECURE 2.0, employers can allow matches to go into a Roth—though they will count as taxable income to the employee that year.

Additionally, in 2026, a new rule will require high-income earners aged 50 or older (making over $145,000) to make Roth-only catch-up contributions. If their employer doesn’t offer a Roth option, they won’t be able to make catch-up contributions at all.

This change underscores the importance of understanding your company’s plan options—and making deliberate decisions rather than accepting defaults.

6. The Education and Communication Gap

Even though roughly 82% of companies that offer 401(k)s also offer Roth options, many employees never hear about them. HR departments often emphasize the traditional account’s immediate tax benefits—“reduce your taxable income now”—without explaining the Roth’s long-term advantages.

Without clear education, most people stick with what feels familiar. And since the Roth 401(k) only became available in 2006, older generations like baby boomers and Gen X had already built retirement habits around traditional plans long before the Roth option existed.

It takes time for financial culture to shift. Roth accounts are still the “new kid on the block” in retirement planning terms. As younger workers become more financially literate and as employers communicate better, adoption rates are likely to climb.

7. Looking Ahead: The Roth Revolution in Progress

Even though only about 18% of workers currently use a Roth 401(k), that’s already double the adoption rate among baby boomers. The trend shows a clear generational shift toward Roth usage—and it’s likely to accelerate in the coming decade.

If more employers offer clear choices and if individuals take the time to understand the tradeoffs, Roth usage could rise to 30–40% by 2035.

But that requires both education and intentional action.

How to Decide: Roth or Traditional?

Here’s a simple checklist for deciding which option fits you best:

1. Know your current tax rate. Understand what you’re saving (traditional) or paying (Roth) today.
2. Estimate your future tax rate. Think about income sources in retirement—Social Security, pensions, RMDs, etc.
3. Compare the two. If your future tax rate will be higher, Roth is stronger. If lower, traditional may be better.
4. Factor in time horizon and growth. The longer your money can grow, the more the Roth’s tax-free benefits compound.
5. Consider a mix. You don’t have to pick one or the other—contributing to both creates flexibility in retirement.

Ultimately, there’s no universal “best” account. What matters is making a deliberate choice—not just going with the default.

Conclusion

The Roth 401(k) and Roth IRA are among the most powerful tools available for building tax-free retirement wealth. Yet, many Americans overlook them due to lack of awareness, inertia, and short-term financial pressures.

As retirement landscapes evolve and tax laws shift, understanding how and when to use these accounts can make a major difference in your long-term financial freedom. The smartest savers aren’t the ones chasing tax breaks—they’re the ones planning with intention.

Read - 8 Signs You're Ready to Retire