Why over 20% of Gen Z use a Roth IRA or 401(k)—and should you?

Learn why Roth accounts offer tax-advantaged growth, higher contribution limits, and no income cap — and why they can be a good place to start.

Roth accounts are popular among new investors. Around 25% of Gen Z use a Roth IRA and over 20% of Gen Z are choosing to use a Roth 401(k).

In fact, Gen Z is more likely than any other generation to use a Roth 401(k). So, why are Roth accounts popular?

Roth IRAs and Roth 401(k)s offer something that traditional IRAs and 401(k)s don’t…

The chance to pay taxes on your contributions now at today's rates, and potentially avoid federal income taxes on qualified withdrawals later—including any earnings—if IRS requirements are met.

This guide breaks down exactly what Roth IRAs and Roth 401(k)s are, how they compare to traditional accounts, and how to decide whether they make sense for your situation.

What are Roth IRA and Roth 401(k) accounts—and what are the tax advantages?

Roth IRAs and Roth 401(k)s are retirement accounts funded with after-tax dollars—meaning:

• You don't receive an upfront tax deduction
• Earnings can go tax-deferred
• Qualified withdrawals in retirement are free of federal income tax, including investment gains, if IRS rules are met (state and local tax treatment may vary)

The key difference is access:

• A Roth IRA is opened independently through a brokerage or investing platform and gives you a wider range of investment options.
• A Roth 401(k) is employer-sponsored with higher contribution limits and includes the potential for matching contributions from your employer.

Do Roth accounts grow tax-free?

They can offer tax-free treatment on qualified withdrawals. You typically won’t owe federal income tax on growth or withdrawals if both of the following are true:

• You're at least 59½ years old
• The account has been open for at least five years

Meet those requirements and, in general, your contributions and any earnings can be withdrawn without federal income tax. For example, a 25-year-old who starts contributing has the potential for decades of tax-advantaged growth.

Roth IRA vs. Roth 401(k) vs. traditional 401(k): What's the difference?

Three accounts, two tax structures. Here's how they compare:

Roth 401(k) vs. traditional 401(k): With a traditional 401(k), contributions are generally made pre-tax, and you’ll owe ordinary income tax on withdrawals in retirement. With a Roth 401(k), contributions are made after-tax, and qualified withdrawals in retirement are generally free from federal income tax if IRS requirements are met (state and local tax treatment may vary).

Roth IRA vs. Roth 401(k) — the key practical differences:

• The Roth 401(k) contribution limit in 2026 is —nearly three times the Roth IRA limit.
• The Roth 401(k) has no income restrictions; Roth IRA eligibility phases out for single filers at ~$150,000–$165,000 and married filers at ~$236,000–$246,000.
• If your income exceeds those thresholds, the Roth 401(k) may be your only direct path to Roth-style tax-advantaged savings.

One important note: Employer matching contributions have traditionally gone into a pre-tax (traditional) account, though some plans now allow Roth matching contributions under SECURE 2.0. Check with your employer or plan administrator to confirm how your match is treated.

Should you choose a Roth IRA or 401(k) in your 20s? Here's how to decide

For most people early in their careers, the Roth IRA or Roth 401(k) can be a good option. Your current tax rate is likely lower than it will be at peak earning years, so paying taxes now and taking qualified tax-advantaged withdrawals in retirement can work strongly in your favor.

A simple framework for choosing:

• Choose a Roth IRA if: you're within the income eligibility limits (under MAGI for single filers/under for joint filers in 2026), want more investment options than your employer's plan offers, or want the flexibility to withdraw contributions penalty-free before retirement—the 2026 contribution limit is for those under 50, or for those 50 and older.

• Choose a Roth 401(k) if: you're in the 12% or 22% tax bracket, expect your income to grow significantly, or want tax-advantaged income in retirement—with no income limits restricting your contributions and an individual contribution limit of in 2026. Additionally, choose a Roth 401(k) to get your employer’s matching contributions if available.
• Choose a traditional 401(k) if: you're in a high tax bracket today and expect lower taxes in retirement.
• Consider splitting if: you're uncertain, or want a mix of pre-tax and tax-advantaged income options at retirement. Many investors contribute to both a Roth IRA and a traditional or Roth 401(k) simultaneously.

Roth IRA contribution and income limits for 2026

Here's what you need to know about how much you can contribute:

• Standard limit:  for employees under 50
• Catch-up (age 50+):
• Super catch-up (ages 60–63): an additional 

• Income limits: You can make a full contribution if your single salary is under . Learn more

Roth 401(k) contribution and income limits for 2026

Here's what you need to know about how much you can contribute:

• Standard limit:  for employees under 50
• Catch-up (age 50+): an additional
• Super catch-up (ages 60–63): an additional $11,250
• Income limits: None—any employee in an eligible 401(k) plan can choose the Roth option regardless of salary
• Combined limit: The contribution limit covers your combined Roth and traditional 401(k) contributions—your employer match doesn't count toward it

No income limit is a major advantage over the Roth IRA. High earners who are ineligible for a Roth IRA can still access the same tax-advantaged growth benefits through their employer's Roth 401(k).

How Betterment helps you make the most of your 401(k)

If your employer uses Betterment to power their 401(k), you're working with a platform built for smart, easy investing. Here's what that means for you:

• Automated portfolio management: Your investments are managed based on your goals and timeline, without you having to pick individual funds
• Personalized goal-setting tools: See projections of where your retirement balance could go and adjust your contributions accordingly
• Built-in financial guidance: Help navigating Roth vs. traditional allocation, contribution rate decisions, and more — built directly into the platform

Ready to make the most of your retirement plan? Add a Roth 401(k) to your account or explore the Betterment employee financial planning hub.

Frequently asked questions

Q: What are the benefits of a Roth 401(k) for new investors?

The biggest benefits are:

• Qualified retirement withdrawals may be federally tax-free if IRS requirements are met (state and local taxes may vary)
• A higher contribution limit than a Roth IRA
• No income restrictions — open to all plan participants regardless of salary
• New investors typically start in lower tax brackets, making it advantageous to lock in today's rate

Q: Is a Roth IRA or Roth 401(k) good for beginners?

Both can be excellent starting points — and for many beginners, they're not mutually exclusive. If your employer offers a Roth 401(k) with a match, start there and contribute at least enough to capture the full match. Then, if you're within the income limits, consider opening a Roth IRA to complement it with more investment flexibility.

For beginners without access to a workplace plan, a Roth IRA can be a good option for a first account. The contribution limits are lower (in 2026), but you'll have a wider range of investment options and the ability to withdraw your contributions—not earnings—penalty-free if you ever need the funds. Most importantly, both accounts are tax-advantaged, which can be a powerful benefit when you have decades of compounding ahead of you.

Q: Should I choose a Roth 401(k) in my 20s?

For most people in their 20s, yes. If your tax rate is lower now than you expect it to be later, paying taxes today and targeting tax-free qualified withdrawals in retirement (federally, if IRS requirements are met) can work in your favor. The exception: if you're already in a higher bracket and expect lower income in retirement, a traditional 401(k) may be the better fit.

Q: Are there income limits for a Roth 401(k)?

No. Unlike the Roth IRA, the Roth 401(k) has no income limits. Any employee in an eligible plan can choose the Roth option regardless of salary.

Q: How much can I contribute to a Roth 401(k) in 2026?

• Under 50:
• Age 50+: $32,000 (includes catch-up)
• Ages 60–63: $35,750 (includes   SECURE 2.0 super catch-up)
• Your employer match is separate and does not count toward these limits