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.
Abstract: 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
Abstract: 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
Abstract: 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
Abstract: 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
Abstract: 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
Abstract: Roth availability doubled in the last decade according to the Plan Sponsor Council of America's 60th Annual Survey of Profit Sharing and 401k Plans. PSCA, part of the American Retirement Association, found Roth was offered in 63.1 percent of plans in 2016 compared to 30.3 percent in 2007.
Source: 401khelpcenter.com, March 2018
Abstract: 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
Abstract: 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
Abstract: 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
Abstract: 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
Abstract: 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
Abstract: 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
Abstract: 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
Abstract: 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
Abstract: Among employers offering Roth 401k savings programs, 40% now offer matching contributions.
Source: Planadviser.com, July 2017
Abstract: The idea seems to be to help employees establish better tax-diversity in their retirement holdings as well as more controlled and rational ways of spending down their collected wealth once their working life ends, SHRM says.
Source: Plansponsor.com, July 2017
Abstract: Can governments increase private savings by taxing savings up front instead of in retirement? Using administrative data from eleven companies that added a Roth contribution option to their existing 401k plan between 2006 and 2010, this 43-page Harvard study finds no evidence that total 401k contribution rates differ between employees hired before versus after Roth introduction.
Source: Hbs.edu, June 2017
Abstract: Before an employer decides to offer Roth deferrals in their 401k or 403(b) plan, careful consideration should be given to what is needed to properly administer the participant accounts.
Source: Consultrms.com, April 2017
Abstract: More employers are making a Roth option available in their 401k and 403(b) plans. So, employees must decide if they want to save on a pre-tax (tax-deferred) basis or on an after-tax basis? This article reviews a number of factors an employee will have to consider.
Source: Consultrms.com, February 2017
Abstract: If your 401k plan allows Roth deferrals, now is a great time to give them a fresh look. The new White House administration and Congress have both indicated a desire to cut personal income tax rates. If that happens, Roth deferrals will be more affordable than ever. You can use this FAQ to help decide if Roth 401k deferrals are right for you.
Source: Employeefiduciary.com, January 2017
Abstract: You may have a 403(b) retirement plan available, but all income earners also have the option to save for retirement in a Roth IRA. So, which one makes more sense? This article explains how they work and the differences.
Source: 403bwise.com, January 2017
Abstract: This short article deals with eight common questions around the 401k Roth feature including, what types of employees might this appeal to, what are the limits, and can employers make a match on a participant's Roth contributions?
Source: Strategicbenefitservices.com, November 2016
Abstract: Employers can offer 401k plan participants the opportunity to make Roth 401k contributions. If you're lucky enough to work for an employer who offers this option, Roth contributions could play an important role in maximizing your retirement income.
Source: Captrustadvisors.com, August 2016
Abstract: The conventional wisdom is that older workers in their prime earning years should focus on using the traditional 401k given the ability to reduce their current taxable income. New academic research "turns conventional wisdom on its head."
Source: Consumerreports.org, July 2016
Abstract: The amended regulations will enable participants to avoid current taxation on partial rollovers of nonqualified distributions from designated Roth accounts. Sponsors will need to update the "safe harbor" rollover explanation given to recipients of eligible rollover distributions from designated Roth accounts.
Source: Towerswatson.com, July 2016
Abstract: Researchers from the University of Arizona and the University of Missouri at Columbia note in a report that an uncertain, progressive tax schedule is the norm in the American economy. They conclude that the optimal asset location policy for most retirement savers involves diversifying between traditional and Roth vehicles, and, contrary to conventional advice, the largest economic benefits from Roth investments accrue to high-income investors.
Source: Plansponsor.com, July 2016
Abstract: A Roth 401k account can be a tremendously valuable vehicle for employees to save for retirement. Unfortunately, many employers have yet to appreciate and, in some cases, communicate effectively the full potential of the Roth option.
Source: Shrm.org, May 2016
Abstract: The Internal Revenue Service issued final regulations that remove the current allocation rule and treat distributions from a Roth account made to multiple destinations as a single distribution beginning on January 1, 2016.
Source: Practicallaw.com, May 2016
Abstract: Roth contributions are an alternative to Roth IRA contributions for participants whose income exceeds the threshold limits, because no phase-out range applies. Another draw is that the contribution potential is higher than with Roth IRAs since the larger dollar limitation for regular deferrals also applies to Roth deferrals. To offer this program is not without strings, however. Here is a list of elements to consider before implementing a designated Roth option under an employer plan.
Source: Ntsa-net.org, May 2016
Abstract: According to the Plan Sponsor Council of America, nearly 58% of 401k plans allowed for Roth deferrals in 2014. Should an investor make Roth deferrals or traditional, pretax contributions into a 401k plan? It's a question that could have large tax implications for clients.
Source: Investmentnews.com (registration may be required), January 2016
Abstract: Roth has been around for almost a decade, and yet it continues to go unnoticed by plan sponsors and participants alike. Author suggests that the Roth 401k has yet to reveal itself as the stunner it is.
Source: Tristarpension.com, September 2015
Abstract: The stated objective of this article is to provide a general overview of Roth, its role and appeal within defined contribution plans, and key considerations for plan sponsors in evaluating this feature in an educated and informed manner.
Source: Porteval.com, April 2015
Abstract: A common mistake encountered in the operation of a Roth feature is that the employer doesn't follow the employee's election as to the type of elective deferral. The employee elects a Roth contribution, but the employer treats it as a pre-tax deferral. The IRS has provided guidance on correcting a Roth contribution failure.
Source: Erisalawyerblog.com, January 2015
Abstract: The proposed amendments to the regulations would limit prospectively the applicability of the rule regarding the allocation of after-tax amounts when distributions are made to multiple destinations.
Source: Benefitsforward.com, September 2014
Abstract: Employees saving for retirement in workplace 401k plans are increasingly choosing the Roth option, according to a recent Aon report. When the Roth option is available, 11% of participants contribute to a Roth, up from 9.6% in 2012 and 8.1% in 2011. The report sheds some light into the decision-making process of employees and suggests that more employers should offer the Roth option.
Source: Forbes.com, August 2014
Abstract: Offering in-plan Roth conversions in your plan is a minor administration change that could potentially make a huge difference in how much your employees have available at retirement. Which participants could benefit from taking advantage of the new Roth in-plan conversion rule? Article reviews a few of the most compelling examples.
Source: 401khelpcenter.com, July 2014
Abstract: Recent legislative changes now allow retirement plans to offer in-plan Roth conversions where participants can convert any existing vested, pre-tax savings into a Roth account. Article explains the Roth in-plan conversion provision and includes a guide to help employees decide if it's right for them.
Source: 401khelpcenter.com, May 2014
Abstract: Offering Roth accounts within a defined contribution plan has become increasingly common and, is expected soon to become the norm -- not the exception. According to Aon Hewitt's 2013 Trends & Experience in Defined Contribution Plans report, 50% of employers currently allow employees to make Roth contributions, an increase from just 11% in 2007. This paper explores participant use of these plans.
Source: Aon.com, April 2014
Abstract: This article briefly reviews the history of the Roth program, summarizes the new guidance in this area, reviews the comprehensive rules applicable to all in-plan Roth rollovers, and provides action steps for plan sponsors to take a fresh look at this optional plan design feature.
Source: Groom.com, March 2014
Abstract: This article provides an overview of Roth 401k plans, also known as designated Roth plans. It discusses the benefits of providing employees with a Roth option, the after-tax treatment of designated Roth contributions and Internal Revenue Code (IRC) requirements governing Roth 401k plans. This article also explains the optional in-plan rollover of distributions from traditional 401k accounts to Roth 401k accounts.
Source: Groom.com, March 2014
Abstract: This resource discusses whether plan sponsors of 401k plans should consider adding an in-plan Roth rollover to their plan. The in-plan Roth rollover permits participants to rollover their eligible non-Roth accounts to a Roth option within the same plan so that participants do not have to remove funds from their employer's plan to participate in a Roth account.
Source: Practicallaw.com, March 2014
Abstract: Under the ATRA, effective January 1, 2013, Congress expanded the law by allowing for in-plan Roth conversions of defined contribution retirement plan accounts that are not otherwise distributable without any income limitations. On December 11, 2013, the IRS issued guidance (Notice 2013-74) relating to these rollovers and their expansion.
Source: Troutmansanders.com, January 2014
Abstract: Notice 2013-74 confirms that plan sponsors that implement an in-plan Roth conversion option generally may limit the types of vested pre-tax contributions that participants can convert, may specify the frequency with which participants can elect to make in-plan conversions, and may discontinue such in-plan conversion programs. The notice further provides special time frames during which plan sponsors may adopt amendments related to in-plan Roth conversion features as well as other guidance regarding in-plan Roth conversions of both distributable and nondistributable amounts.
Source: Morganlewis.com, December 2013
Abstract: Plan sponsor adoption of 401k Roth provisions has jumped in recent years, thanks in part to IRS rules that took effect last year. Those make it possible for retirement plan participants to convert existing 401k plan balances to Roth 401k plan balances, whether or not the participant was eligible for a distribution.
Source: Benefitnews.com, November 2013
Abstract: The decision to contribute to a Roth 401(k) instead of deferring at a tax-deferred level is often based on an anticipation of changes to future tax rates. While this is a personal decision based on future income, several other factors should also be considered.
Source: Retirementtownhall.com, October 2013
Abstract: This FAQ covers the basics of the Roth 401k including: May the participant make both pre-tax deferrals and Roth 401k deferrals in the same year? Does the Roth contribution have to stay in the plan for five years in order for the earnings to be tax-free? May a 403(b) arrangement have Roth 403(b) contributions?
Source: McKay Hochman, October 2013
Abstract: Wells Fargo announced today that in the first quarter 2013, 10 percent of all participants in Wells Fargo administered defined contribution plans chose to contribute to a Roth 401k, when available, up from 8.9 percent reported in the first quarter 2012. Notably, 16.9% of participants under age 30 contributed to a Roth 401k (up from 15.2% one year ago) as compared to 4% of participants in their 60s.
Source: 401khelpcenter.com, July 2013
Abstract: The Economic Growth and Tax Relief Reconciliation Act of 2001 allowed plan sponsors to add a Roth 401k option to defined contribution savings plans starting. Like contributions to a Roth IRA, employee contributions to a Roth 401k or 403(b) are not deductible from current taxable income, but withdrawals of principal, interest, and capital gains in retirement are tax-free. This paper describes the characteristics of employees who utilize the Roth 401k and also describes how employees use the Roth 401k.
Source: NBER.org, July 2013
Abstract: In this paper, authors Jean Young and Steve Utkus of Vanguard Center for Retirement Research take an in-depth look at Roth and the new American Taxpayer Relief Act of 2012 provision. They summarize current Roth adoption statistics, discuss considerations involved in making a conversion decision, and reveal why ATRA's expanded Roth conversion feature is likely to boost Roth adoption rates over time.
Source: Vanguard.com, May 2013
Abstract: A recent study by Aon Hewitt of 300 employers showed the impact the American Tax Relief Act of 2012 could have on a plan sponsor's decision to amend their plan document to permit Roth contributions. Many retirement industry leaders are holding off on permitting this arrangement until further guidance is issued by the IRS.
Source: Baden Retirement Plan Services, March 2013
Abstract: Employers are recognizing the significant benefits a Roth option offers to certain participants, and the 2012 fiscal cliff legislation provides an impetus for taking a deeper look at why you may want to consider adding a Roth option. In this paper discusses how a Roth option may be a valuable addition to a retirement plan, and considerations for plan sponsors when deciding whether or not to offer Roth contributions.
Source: Arnerich Massena, March 2013
Abstract: With an increasingly murky tax horizon, companies sponsoring 401k plans might be looking for ways to provide participants with more flexibility in managing their tax exposure when taking plan distributions. This article provides an overview of the differences between pre-tax and Roth contributions, and summarizes the main features of this new Roth conversion option.
Source: Jenner.com, March 2013
Abstract: White paper provides an overview of Roth 401k plans, also known as designated Roth plans. It discusses the benefits of providing employees with a Roth option, the after-tax treatment of designated Roth contributions and Internal Revenue Code requirements governing Roth 401k plans. Also explains the optional in-plan rollover of distributions from traditional 401k accounts to Roth 401k accounts.
Source: Groom.com, February 2013
Abstract: With the recent legislative changes that have made Roth top of mind for both plan sponsors and participants, now is the time to fully reexamine the opportunities the Roth 401k option presents within the broader context of planning for retirement. Offers tips for plan sponsors attempting to educate participants about the pros and cons of Roth 401k contributions.
Source: Fidelity.com, February 2013
Abstract: This technical update addresses the tax rules of in-plan Roth transfers based on what we know today. The IRS will issue guidance affecting some of these issues and that guidance may differ from interpretations contained in this article.
Source: Relius.net, February 2013
Abstract: The IRS is working on guidance for the new Roth provision, but because it is immediately effective, practitioners are being asked questions by clients now. This article assembles a number of the frequently asked questions and responses.
Source: Relius.net, February 2013
Abstract: The recent "fiscal cliff" tax law, the American Taxpayer Relief Act, includes a provision effective Jan. 1, 2013 that greatly expands the ability of plan participants to convert pre-tax plan accounts to after-tax Roth accounts, making all plan accounts potentially convertible. This is an optional provision that can be added to any 401k, 403(b), or governmental 457(b) plan that allows Roth contributions. Before plan sponsors open up this opportunity, however, there are a number of practical issues to deal with.
Source: Davis Wright Tremaine LLP, January 2013
Abstract: The "fiscal cliff" tax compromise just passed by Congress expands the opportunity to convert pre-tax savings in a 401k plan into Roth savings. The new rule, shown here, will allow 401k participants to complete intra-plan Roth conversions.
Source: 401khelpcenter.com, January 2013
Abstract: The American Taxpayer Relief Act (H.R. 8) passed by the U.S. House of Representatives and the Senate contains an important provision that offers a new opportunity to convert assets in defined contribution plans (such as Section 401k plans), Section 403(b) plans, and governmental 457(b) plans into Roth amounts within the plan. This paper outlines the basic features of the new conversion right.
Source: Americanbenefitscouncil.org, January 2013
Abstract: This article reviews several advantages to the Roth 401k, including the fact that a $15,000 Roth contribution can have the same tax sheltering power as a much higher contribution made through a traditional 401k. The Roth is even more valuable if there is a risk of higher taxes on distributions.
Source: 401khelpcenter.com, May 2006.
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