The Pros
Potentially tax-free growth
It can be complicated to quantify the value of potentially tax-free growth versus a current tax deferral. You don't know what your income will be in the future, nor what your tax rate will be.
If you expect your marginal rate to be at least as high after retirement as it is currently—which would apply to many younger participants who anticipate growing incomes over time—the Roth option could work in your favor over the long term. This also sometimes applies to those who plan to move after retirement from a low-tax state to a high-tax state, say Texas to California.
It could also work out that the dollar amount difference in the taxes you'd pay by the time you get to retirement is very small, meaning the income tax you would pay per year on Roth 401(k) contributions could be roughly equal to what you'd pay eventually on distributions after 59½. Your age and your level of income will influence the bottom line.
Help with RMD concerns
Required minimum distributions (RMDs) apply to Roth 401(k)s in the same way they do to tax-deferred 401(k)s, meaning you'd have to start taking out a specified amount once you turn 72 if you are no longer working. However, once you are retired, you can roll over your plan into a Roth IRA, and then it would no longer be subject to the RMD rules (at least during the lifetime of the original owner), and you could withdraw the money on your own timetable.
Access to tax-free growth at higher income limits
High earners start getting restricted from making full Roth IRA contributions above $125,000 in modified adjusted gross income in 2021 for individuals and $198,000 for married couples filing jointly, and this will be $129,000 for individuals and $204,000 for couples in 2022. But Roth 401(k) plans follow 401(k) plan rules on this issue, which means there are no income restrictions.
You can also make higher contributions in a Roth 401(k) than a Roth IRA. An individual can put $6,000 into a Roth IRA per year, or $7,000 if over 50 in 2021 and 2022. In contrast, you can put $19,500 into a Roth 401(k) for 2021 and $20,500 for 2022, plus $6,500 catch-up if you're over 50 in both years. Or you can mix and match percentages and make some pre-tax contributions and some post-tax contributions. You can adjust throughout the year according to your needs and your plan specifications.
The cons
No tax deferral now
The list of cons may be short for Roth 401(k)s, but missing tax deferral is a big one. When faced with a choice of paying more tax now or later, most people choose to pay later, hence the low participation rates for Roth 401(k)s.
Encouraging people to save for retirement is important, and tax deferral has always been a key driver of savings. The financial justification for this has been that historically, people typically had lower tax rates in retirement than during their working years, and the math generally worked in their favor to have a lower adjusted gross income now and take taxable distributions in retirement.
There are a host of other reasons why a taxpayer might benefit from a lower adjusted gross income today, such as the calculation of child tax credits, financial aid for college, or divorce settlements. Then there is the impact on take-home pay.