Roth accounts take after-tax money, so they don't provide the same immediate tax break as traditional accounts, which take pretax money. But investment gains in a Roth are never taxed, while retirees must pay income taxes on withdrawals from traditional 401(k) and individual retirement accounts. The benefits of Roth accounts are clearest for younger workers, though recent research suggests all workers can benefit from a mix of Roth and traditional assets.
Only 6.7 percent of all worker contributions went to Roth accounts last year, according to T. Rowe Price, but that's up 43 percent in just two years. Employees in their 20s make 8.1 percent of contributions to Roth options.
Millennials are less and less likely to raid their 401(k) accounts for today's needs. Workers in their 20s are half as likely as all employees to borrow money from their 401(k). While workers over 40 have taken out more 401(k) loans over the past two years, young workers are borrowing less often.
Young workers are often tempted to cash out small 401(k) balances when they hop from job to job, even though these early withdrawals come with a 10 percent penalty. But more and more workers are going through the hassle of rolling these balances over into new 401(k)s or IRAs. The share of 20-something participants cashing out their 401(k) is down 10 percent over the past two years.