Schwab Sees More Employers Offering Roth 401k
SAN FRANCISCO, CA, March 31, 2008 -- As employers look for more ways to help their employees save for retirement, Charles Schwab today released new data showing an increase in the number of plan sponsors making the Roth 401k available to employees. As of December 31, 2007, 35 percent of Schwab-administered retirement plans were offering the Roth 401k, a significant increase from 26 percent at the end of 2006. This number is also well above the industry average of around 22 percent, according to a Profit Sharing/401k Council of America 2007 Roth 401k survey.
"It is no secret that most Americans have to be their own advocate when it comes to retirement savings, but employers are showing a real commitment to helping employees save strategically," said Dean Kohmann, Charles Schwab vice president of 401k plan services. "Tax season is the perfect time for people to take a look at the Roth 401k and decide if it makes sense for them."
Schwab's Roth 401k Calculator
To help people make a determination about whether or not a Roth 401k is right for them, Schwab provides a Roth 401k Calculator on its website at http://scrs.schwab.com/tools/schwab_roth_401k_calc.htm.
The tool enables plan participants to enter basic information including their expected retirement date, salary and current retirement plan contribution level, and the calculator will compare retirement income for both a traditional 401k and a Roth 401k.
Depending on a person's individual tax situation, the Roth 401k can offer a strategic tax planning opportunity. In a traditional 401k, contributions are made on a pre-tax basis and taxes are paid when the person takes distributions from the plan. In a Roth 401k, contributions are made on an after-tax basis and distributions and investment earnings are tax-free assuming the first distribution is at least five years following the first contribution and a person is at least 59 ½ years old.
Kohmann pointed out that a Roth 401k makes the most sense for people who expect to be in a higher tax bracket in the future or higher-paid employees who might be precluded from making Roth IRA contributions due to income limitations. A Roth 401k can also be rolled into a Roth IRA, which requires no minimum distribution at retirement, presenting certain estate planning opportunities.
Roth 401k Picking Up Steam with Employers
"We have seen a steady increase in interest in the Roth 401k across most types of employers, but we see the highest buy-in among professional services firms and their employees," said Kohmann. "This is because employees at these types of firms are generally more likely to work with personal financial advisors who advise them to use Roth 401k, they typically have higher salaries that disqualify them from contributing to a Roth IRA as part of their tax strategy, and their salaries give them greater leeway to save for retirement on an after-tax basis."
Schwab's third party administrator (TPA) clients are also seeing increasing interest in the Roth 401k among employers. Steele Capital Management Principal Kevin Timmerman said, "I think we are seeing more employers and employees ask about the Roth 401k because everyone is looking for tax advantages, and the Roth 401k can be beneficial for many people."
About Schwab Corporate & Retirement Services
Schwab Corporate & Retirement Services provides a broad range of investing services through the workplace, including through employer-sponsored retirement plans direct to corporations or through a nationwide network of more than 300 retirement Third Party Administrators (TPAs). The enterprise also offers the Schwab Personal Choice Retirement Account® and provides employee equity compensation plan services and corporate brokerage services, in addition to a range of recordkeeping, custodial and trustee services, which are available through Charles Schwab Trust Company, a division of Charles Schwab Bank. Schwab Corporate & Retirement Services also includes Charles Schwab Clearing Services (CSCS), which provides mutual fund trading, settlement, and related clearing services to banks, brokerage firms and trust companies. As of December 31, 2007, assets held in plans serviced by Schwab Corporate & Retirement Services stood at $236.7 billion. More information is available at www.schwab.com.
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