Roth 401(k): What Australians Should Know About This US Retirement Trend

The Roth 401(k) has been a hot topic in US personal finance circles, and with its tax-advantaged structure, Australians may be wondering if there’s something to learn—or even envy—about this American retirement vehicle. While Roth 401(k)s aren’t available down under, their features, popularity, and recent policy tweaks offer some food for thought as Australia continues to refine its own superannuation system. Let’s break down what a Roth 401(k) is, how it compares to super, and what lessons Aussie investors and policymakers might draw from this US trend.

What Is a Roth 401(k), and Why Is It Popular in 2025?

A Roth 401(k) is a type of employer-sponsored retirement account in the United States that allows employees to contribute after-tax income and enjoy tax-free withdrawals in retirement. In 2025, Roth 401(k)s have surged in popularity, spurred by rising federal tax rates and new contribution limits (now up to USD $23,000 for those under 50, and $30,500 for those 50 and older). The main appeal? You pay tax on your contributions today, but your investment earnings and withdrawals in retirement are completely tax-free—no matter how much your portfolio grows.

• After-tax contributions: Money goes in after you’ve paid income tax, so you don’t get a deduction up front.
• Tax-free growth and withdrawals: Provided you follow the rules, all investment gains and withdrawals in retirement escape further tax.
• Flexible access: In 2025, rule changes have made Roth 401(k)s more flexible, including the elimination of required minimum distributions for original account holders, making them even more attractive to high-income earners and young professionals.

Major US employers like Google and Amazon have expanded Roth 401(k) options, and financial advisers are increasingly steering clients towards these accounts, especially with forecasts of higher tax rates in the future.

How Does This Compare to Australian Superannuation?

Australia’s superannuation system shares some similarities with the US 401(k) structure, but there are key differences, especially around tax treatment. Most super contributions are made with pre-tax income (concessional contributions), taxed at 15% in the fund, and then taxed at 0% or 15% when you withdraw, depending on your age and the component of your balance. However, Australians also have the option of non-concessional (after-tax) contributions, which are not taxed going in or coming out, but are capped at $110,000 per year (as of 2025).

• Super is mandatory: Employers must pay 11.5% (2025 rate) of your salary into super, regardless of whether you want it or not.
• Tax-free retirement phase: Once you reach preservation age and retire, income and withdrawals from your super pension phase are generally tax-free.
• Contribution caps and preservation rules: Super is locked away until you reach your preservation age, and there are annual limits on how much you can contribute, whether pre- or post-tax.

While super’s tax structure is already highly efficient, the Roth 401(k) model highlights the appeal of after-tax contributions for those expecting to be in a higher tax bracket in retirement or seeking greater tax certainty.

Lessons and Trends: Should Australia Consider a ‘Roth Super’?

With US policymakers making Roth-style accounts more attractive, some Australian commentators are asking whether superannuation could benefit from even greater post-tax flexibility. While our non-concessional contribution rules offer a similar pathway, the US approach of letting employees choose between pre-tax and post-tax contributions within the same account provides extra flexibility and control.

Key takeaways for Australia in 2025:

• Tax certainty is attractive: Locking in your tax liability now, rather than in retirement, is appealing to those who expect higher future tax rates.
• Financial literacy matters: Roth 401(k)s have prompted more Americans to engage with their retirement strategy—Australian super funds could benefit from similar engagement initiatives.
• Flexibility for high earners: With the cap on non-concessional contributions, there’s debate about whether Australia should allow larger after-tax contributions, especially as more Australians inherit wealth or sell businesses.

While there’s no sign of a full ‘Roth super’ on the horizon, the ongoing global trend toward greater retirement account flexibility and tax transparency is something Australian policymakers are watching closely in 2025.

Real-World Example: Who Would Benefit?

Consider a 35-year-old Sydney professional earning $180,000. If they expect their income (and tax rate) to rise over their career, and they anticipate significant investment growth, after-tax contributions (like a Roth 401(k) or Australian non-concessional super) could help them lock in today’s lower tax rate and access tax-free withdrawals later. For others on a lower income, concessional (pre-tax) contributions and the immediate tax deduction might still make more sense.

What’s Next for Retirement Savers?

While Australians can’t open a Roth 401(k), understanding the rationale behind its rise in the US can help inform smarter super strategies here. With the 2025 Federal Budget confirming no major changes to contribution caps or tax rates for super, the focus remains on maximising the tax efficiency of your retirement savings—whether through concessional or non-concessional contributions. As global retirement systems evolve, staying on top of these trends can give you an edge.