COLLECTED WISDOM™ on Roth 401k Issues

This archive contains not only the most current material on the topic, but also older items that are still relevant, provide background, perspective or are germane to the topic.

If you find a broken link or an items that you feel is outdate, irrelevant or no longer appropriate, please let us know.

Roth 401k Remains Underutilized Despite Potential Benefits

A well-designed Roth 401k may be an attractive option for many plan participants, and it is important for plan sponsors considering such a feature to design the plan with the needs of their workforce in mind. It is also critical to communicate the differences between the pre-tax option, the specific timing rules required, and the tax-free growth it offers. Additionally, plan sponsors should be mindful of potential administrative costs and other compliance requirements in connection with allowing the Roth option.

Source: Berrydunn.com, December 2022

The Roth 401k

Employers can offer 401k plan participants the opportunity to make Roth 401k contributions. If you're lucky enough to work for an employer that offers this option, Roth contributions could play an important role in maximizing your retirement income.

Source: Captrust.com, June 2022

SECURE 2.0 Surprise: The ROTH Catch-Up Contribution and ROTH Employer Match Proposal

SECURE 2.0 would reclassify all catch-up contributions as Roth-only in 2024, increase catch-up contributions to $10,000 only for ages 62 to 64, optionally treat employer matching contributions as Roth contributions, and offer a new safe harbor correction for auto-enrollment plans' unintentional administrative flaws.

Source: Milliman.com, June 2022

Employers Adding Roth 401k Option at a Fast Clip

The share of employers allowing Roth 401k savings surged last year, giving more workers access to the financial benefits that accompany such contributions. But there are some roadblocks to employee use, such as automatic enrollment and the structure of 401k matching contributions.

Source: Cnbc.com, January 2022

Why the Roth 401k Is the Unsung Hero of Retirement Plans

One retirement savings vehicle doesn't get the attention it deserves, according to one financial expert. The Roth 401k is "the unsung hero, if you will, of your retirement plan," Sun Group Wealth Partners Managing Director Winnie Sun, especially for her clients whose "No. 1 goal" is to have tax-free savings in retirement.

Source: Yahoo.com, September 2021

Three Key Differences Between a Roth 401k and a Roth IRA

Roth accounts are after-tax accounts with unique benefits for retirement savers. Namely, investments grow tax-free, and withdrawals aren't subject to tax during one's retirement years. But there are some key differences between Roth savings in a 401k plan and an individual retirement account. Here are some of the biggest.

Source: Cnbc.com, September 2021

Roth Conversions May Not Pay Off Until Age 90 for Most

Roth conversions almost always work out in a client's favor, but not necessarily for the reasons that advisers often recommend them, according to an academic study published this week. Contrary to conventional wisdom, tax-rate changes -- up, down, or flat -- have a minimal effect on the long-term financial benefits from converting a traditional IRA or 401k to a Roth account, Edward McQuarrie, professor emeritus at Santa Clara University, wrote in a recent paper. Instead, the overarching factor that gives Roth conversion an edge, given enough time, is compounding, McQuarrie found.

Source: Investmentnews.com (registration may be required), June 2021

What Is a Roth 401k?

A Roth 401k is a feature of many employer-sponsored 401k plans, and it offers significant tax benefits for workers saving for retirement. Here's what you need to know about the Roth 401k to decide if it's the right choice for your retirement savings.

Source: Bankrate.com, April 2021

Should You Rollover Your Roth 401k?

If you've invested in a Roth 401k at work and are leaving your job, you may want to do a Roth 401k rollover. A Roth 401k rollover allows you to move your money from your current retirement account to a new retirement plan without any immediate tax consequences, as long as you follow certain rules.

Source: Fool.com, September 2020

The Rising Tide of the Roth 401k

Many employer-sponsored retirement plan participants are conflicted in deciding which type of account is best for their 401k contributions: traditional or Roth? Often having no idea which is best for their situation, they need the help of an advisor. You can advise them with confidence if you know just two things.

Source: 401kspecialistmag.com, September 2020

What is a Roth 401k?

A Roth 401k is one of the two major types of 401k plans, and it offers significant tax benefits for workers saving for retirement. The Roth 401k is an employer-sponsored plan, meaning that you can use the plan only if it's offered at your workplace. The other major plan is called the traditional 401k, and it offers significant -- but different -- tax benefits for retirement saving.

Source: Bankrate.com, May 2020

401k vs. Roth 401k: Which One Is Better for You?

The 401k plan comes in two varieties, the Roth 401k and the traditional 401k. Each offers a different type of tax advantage, and choosing the right plan is one of the biggest questions workers have about their 401k. It can be a surprisingly complicated choice, but many experts prefer the Roth 401k because you'll never pay taxes again on withdrawals. However, the choice depends a lot on your financial situation. Here's what you need to know about each type and why one might be better for your needs.

Source: Bankrate.com, April 2020

Roth 401k vs. Roth IRA -- What's the Difference?

Roth accounts are popular retirement savings options for many. Roth IRAs and Roth 401k accounts can both be options for some investors. What's the difference between these two types of accounts?

Source: Thestreet.com, February 2020

Roth 401ks Could Get a Boost From the SECURE Act

The recently passed SECURE Act did away with stretch provisions that allowed young beneficiaries to gradually take distributions from inherited IRAs over the course of their lives. The death of the stretch IRA could lead to wider use of a savings feature that's often neglected in company-sponsored retirement plans: the Roth 401k.

Source: Investmentnews.com (registration may be required), February 2020

How Would 401k "Rothification" Alter Saving, Retirement Security, and Inequality?

This 4-page paper explores how "Rothification" might influence household consumption, saving, retirement patterns, and tax-payments, using a richly detailed and state-of-the-art life-cycle stochastic dynamic model with endogenous work effort, portfolio choice, consumption, saving, and Social Security claiming patterns. We also evaluate how outcomes will vary for workers with different lifetime earnings profiles (proxied by worker-types differentiated by sex and education). Last, it assesses what changes if the economy moved away from the current low interest rate environment and returned to a more "normal" regime.

Source: Mrdrc.isr.umich.edu, November 2019

Pre-tax or Roth 401k Contributions, That Is the Question

The decision of whether to make pre-tax or Roth (after-tax) 401k contributions frequently pops up, especially when investors start new jobs. Both pre-tax and Roth 401ks offer tax-advantaged investment growth, the same annual employee contribution limits, and both allow the plan participant to receive any available employer match. However, there are key differences between these options, so it is important to understand the pros & cons before electing whether pre-tax, Roth, or a combination of the two is appropriate for you.

Source: Wealthspire.com, November 2019

Roth Rollover Traps

Contributor Natalie Choate reviews the good, the bad, and the ugly when rolling over from a Roth 401k to a Roth IRA.

Source: Morningstar.com, September 2019

The Roth Conundrum

Is Roth really a superior option for a participant's voluntary contributions to a retirement plan? The argument for Roths at this point is centered on the historically low current tax rates: rather than defer pre-tax into a traditional 403b/401k/457b and pay higher taxes later, defer to a Roth and pay taxes now while they are low. But is that actually the case?

Source: Cammackretirement.com, August 2019

How to Maximize Roth Savings Through a 401k Plan

A "Roth" retirement account is the greatest savings vehicle ever invented, because all investment profits in a Roth account are totally income-tax-free. The only problem is, how do you get money into a Roth account without undue tax cost? This article looks at a case study that will illustrate little-known ways that some workers can maximize their Roth contributions to a 401k at a low (or no) tax cost.

Source: Morningstar.com, June 2019

Choosing Between 401k and Roth 401k Accounts

Some employers offer both traditional 401k and Roth 401k options. The lower your tax bracket is, the larger the contributions to your Roth. Splitting your contributions will provide you some flexibility. It is important for you to understand the exceptions of your plan to avoid paying a penalty for early withdrawal.

Source: Sandiegouniontribune.com, June 2019

Is Roth Participation in DC Plans Being Suppressed by Recordkeepers?

Vanguard recently disclosed that between 2013 and 2017, the percentage of plans offering Roth 401ks in Vanguard's full-service business increased from 52% to 68%, while the portion of participants choosing the Roth deferral actually declined between 2016 and 2017, from 13% to 12%. One of the causes of the lower market penetration of Roth plans might be the recordkeeper advisers' assets-under-management compensation model. Companies are juggling a conflict of interest issue in that they reap 50% greater earnings on $600 in AUM in a traditional DC plan than they do on $400 in AUM in a Roth plan.

Source: Investmentnews.com (registration may be required), May 2019

Can You Rollover a Roth 401k to a Roth IRA?

Rolling over a Roth 401k to a Roth IRA can make sense in the right circumstances, but you need to be aware of the rules. When you rollover funds from a Roth 401k to a Roth IRA, it's the age of the Roth IRA that sets the clock for the 5-year rule. It's also important to understand the income limits on a Roth IRA to make sure you're eligible.

Source: Schwab.com, April 2019

Interested in a Roth 401k? Here's How They Work

As the name suggests, a Roth 401k combines features of the traditional 401(k) with those of the Roth IRA. It's offered by employers like a regular 401k plan, but as with a Roth IRA, contributions are made with after-tax dollars. While you don't get an upfront tax-deduction, the account grows tax-free, and withdrawals taken during retirement aren't subject to federal income tax, provided you're at least 59 1/2 and you've held the account for more than five years.

Source: Marketwatch.com, February 2019

Evaluating Roth and Pretax Retirement Savings Options

There are two ways to get Roth account exposure: a Roth IRA or through a retirement plan that has a designated Roth account. While Roth IRAs have income eligibility limits, those do not apply to contributions within a 401k plan. Pretax contributions are generally preferable for people who expect their income tax rate to decrease in retirement. Having Roth accounts may make sense for tax diversification, flexibility and as a hedge against higher tax rates.

Source: Troweprice.com, February 2019

Roth 401ks Are an Essential Employee Benefit

Many plan sponsors are adding the option for Roth 401k contributions of their plan. Having this feature as part of the employee benefits package will make your 401k plan more attractive and will allow your organization to remain competitive to attract and retain top talent. This article outlines important points to keep in mind if you're considering adding a Roth 401k option to your plan.

Source: Planpilot.com, January 2019

Ways & Means Responds on Rothification Rumors

Rumors notwithstanding, the House Ways & Means Committee tells the American Retirement Association, the committee has no plans to revisit Rothification as part of the new tax reform discussions.

Source: Asppa.org, July 2018

Push to Require Roth 401k Savings Over Traditional Plans May Re-Emerge

Retirement plan advisers who thought Washington had ditched the idea of requiring Roth 401k savings instead of traditional 401ks should think again. Those who closely follow retirement policy say senior legislators on Capitol Hill are again whispering about so-called Rothification. The idea could re-emerge, perhaps to make up for tax-revenue shortfalls related to other retirement legislation being floated, observers said.

Source: Investmentnews.com (registration may be required), June 2018

How a 'Mega Roth' Can Help Your DC Plan

Plan sponsors who want to allow participants to contribute more Roth monies to a defined contribution plan than the standard limits have an option: An in-plan Roth conversion of after-tax contributions in the same year they are made to the DC plan.

Source: Callan.com, April 2018

Little-Known 401k Trick Can Open the Floodgates to Roth IRA Savings

The Roth IRA has very low contribution limits, while those in high-income groups may not qualify to contribute to the account. One strategy to make the most of the account's tax benefits is the backdoor option, which allows clients to make nondeductible contributions to a traditional IRA or contribute after-tax money to a 401k plan and then convert the funds into a Roth.

Source: Fool.com, April 2018

Roth 401k Contributions: Gaining Popularity, Looking to increase Tax Diversification

As a retirement planning tool, Roth 401k contributions can offer 401k plan participants a more nuanced approach to retirement saving than a traditional 401k plan can on its own. The different tax status of Roth 401k withdrawals gives plan participants more flexibility and opportunities to broaden their retirement planning strategies and turbocharge their retirement plan outcomes.

Source: Willis.com, March 2018

Evaluating Roth and Pretax Retirement Savings Options

There are two ways to get Roth account exposure: a Roth IRA or through a retirement plan that has a designated Roth account. While Roth IRAs have income eligibility limits, those do not apply to contributions within a 401k plan. Pretax contributions are generally preferable for people who expect their income tax rate to decrease in retirement. Having Roth accounts may make sense for tax diversification, flexibility and as a hedge against higher tax rates.

Source: Troweprice.com, February 2018

Know About the Roth 401k Surprise?

Financial experts and writers often tout the Roth 401k's main selling point: when the money is withdrawn in retirement, it won't be taxed. Well, that's not entirely true. Employer contributions to Roths are different.

Source: Bc.edu, January 2018

The Advantages of Roth 401k Contributions

Has your organization considered a plan amendment that would allow Roth contributions? Or, if you already permit Roth contributions, do you feel like you can easily converse with your employees who have related questions? This 4-page white paper is designed to help in both situations.

Source: Qualifiedplanadvisors.com, September 2017

Leveraging - A Hidden Advantage of Roth 401k Accounts

There have been numerous articles published about the advantages of Roth IRAs and Roth 401k accounts. When combined with the ability for leveraging (subject to payment of unrelated business income tax (UBIT)), some interesting planning and tax saving opportunities arise. One such opportunity may be the ability to leverage a Roth account to enhance the deferral and tax-free distribution power of the Roth.

Source: Foxrothschild.com, September 2017

The 411 on Roth vs Regular 401ks

Workers usually don't know the difference. Yet employers increasingly are asking them to choose. Nearly two-thirds of private-sector employers with Vanguard plans today offer both a traditional and a Roth 401k in their employee benefits. Just four years ago, fewer than half did. Here are some tips on navigating the traditional-vs-Roth decision.

Source: Bc.edu, September 2017

Most DC Plan Participants Don't Understand Roths, Survey Finds

Amid all of the recent talk about tax reform and the potential move toward Rothification, Cerulli Associates has come out with a new report showing that only one-third of DC plan participants can correctly identify the benefits of Roth contributions.

Source: Asppa.org, September 2017

Participants Do Not Factor Tax Rates Into Retirement Savings Decisions

Researchers found that although education increased participants' use of expected tax-rate changes in their plan choices, participants continued to display an economically "irrational" preference for pre-tax deferrals over Roth deferrals.

Source: Plansponsor.com, August 2017

Why Millennials Should Embrace Roth 401ks

Does your 401k have a Roth account option? More employees, especially younger ones, are choosing to contribute to Roth accounts, according to two recent industry reports. What do these savvy Millennials know?

Source: Forbes.com, July 2017

401khelpcenter.com, LLC is not the author of the material referenced in this digest unless specifically noted. The material referenced was created, published, maintained, or otherwise posted by institutions or organizations independent of 401khelpcenter.com, LLC. 401khelpcenter.com, LLC does not endorse, approve, certify, or control this material and does not guarantee or assume responsibility for the accuracy, completeness, efficacy, or timeliness of the material. Use of any information obtained from this material is voluntary, and reliance on it should only be undertaken after an independent review of its accuracy, completeness, efficacy, and timeliness. Reference to any specific commercial product, process, or service by trade name, trademark, service mark, manufacturer, or otherwise does not constitute or imply endorsement, recommendation, or favoring by 401khelpcenter.com, LLC.

About | Glossary | Privacy Policy | Terms of Use | Contact Us

This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 International License.