Part Four · The Roth Almost Nobody Uses
The Roth 401(k) and Roth 403(b) — built into your paycheck, ignored by 80% of participants.
Most workers know about the Roth IRA — the standalone account you open at Fidelity or Schwab with a $7,000 annual cap. Far fewer know that the same Roth tax treatment is sitting inside their workplace plan, with a contribution limit more than three times higher and no income phase-out at all. Plan Sponsor Council of America data shows that roughly 88% of 401(k) plans now offer a Roth option, but only about 28% of participants use it. For 403(b) plans — California teachers and public-school employees — adoption is even lower.
"The single most under-used wrapper in the U.S. tax code is the Roth bucket already inside someone's existing 401(k) or 403(b). It costs nothing to switch on. Most people have just never been told it exists."
How the workplace Roth works
A Roth 401(k) or Roth 403(b) is not a separate account — it's a second money source inside the same plan you already contribute to. Same recordkeeper, same fund menu, same employer match, same vesting schedule. The only thing that changes is which side of the tax bill the money gets withheld for. You can shift the percentage in your payroll/recordkeeper portal in about 90 seconds.
Limit
$23,500 / year (2026)
Same elective-deferral limit as the pre-tax bucket — and they share one cap. You can put $23,500 entirely into Roth, entirely into pre-tax, or split it any way you like. $31,000 if you're 50 or older. $34,750 for the SECURE 2.0 super catch-up at ages 60–63.
vs. Roth IRA cap of $7,000
No Income Limits
Open to every earner
Roth IRAs phase out around $150K single / $236K MFJ in 2026. The workplace Roth has no income limit at all. A $500K-earning physician can put the full $23,500 into a Roth 401(k) directly, no Backdoor procedure required.
Reference IRC §402A
Match Treatment
Match goes to whichever side you pick
SECURE 2.0 (effective 2024) gave employers the option to deposit the match into the Roth source if you elect — previously, the match had to be pre-tax even if your contribution was Roth. Adoption is gradual; ask your HR or look in the Summary Plan Description.
SECURE 2.0 §604
RMD Note
No RMDs after SECURE 2.0
Roth 401(k) and Roth 403(b) accounts used to require RMDs at 73 — the only Roth vehicles that did. SECURE 2.0 fixed that as of 2024. The workplace Roth now matches the Roth IRA: no lifetime distributions required.
SECURE 2.0 §325
Roth 403(b) — the version California teachers should know about
403(b) plans are the K–12, university, and non-profit equivalent of 401(k)s. Created by the same 1958 statute that gave teachers tax-deferred retirement accounts in the first place, the 403(b) historically existed only in pre-tax form. The Pension Protection Act of 2006 added Roth 403(b) authority — meaning California school district employees, CSU/UC staff, and most non-profit workers can route their contributions through a Roth source if their plan vendor supports it. Most major 403(b) vendors now do.
The pension-coverage angle changes the math materially. A CalSTRS or CalPERS member retires with a defined pension that already produces ordinary-income tax at the federal level — before any 403(b) withdrawal layered on top. Pre-tax 403(b) contributions deferred during a 22% or 24% bracket may come out at a 24% or 32% bracket in retirement once the pension floor stacks on Social Security and any spousal income. Roth 403(b) sidesteps that compression. It is one of the highest-leverage decisions a mid-career California educator can make — and almost nobody at the district HR office is having that conversation.
Why so few participants use it
| Reason | What's actually happening |
|---|
| Default is pre-tax | Auto-enrollment defaults route 100% to pre-tax. Switching to Roth requires the participant to actively change the election — a step most never take. |
| HR doesn't advise | HR is not allowed to give tax advice. The Summary Plan Description mentions Roth in passing; nobody walks new hires through the choice. |
| "Roth" still means IRA to most people | Survey data: when participants hear "Roth" they think of the standalone IRA, not the workplace bucket. The category gets lost. |
| Recordkeeper UI buries it | On most platforms the Roth/pre-tax split is two clicks deep inside the contribution-rate screen. If you don't know to look, you won't see it. |
The 90-second action
Log in to your recordkeeper (Fidelity NetBenefits, Empower, Vanguard, Voya, TIAA, CalSTRS Pension2, etc.). Navigate to the contributions or paycheck-deductions screen. You will almost always see two sliders or two percentage fields — one labeled Pre-tax / Traditional and one labeled Roth. Pick a split, save. The next paycheck reflects the new election. There is no paperwork, no enrollment form, no waiting period.
