Roth 401(k) plans take off
Since then, Roth 401(k)s have
been taking off. According to a survey of 429 profit-sharing/401(k) plan sponsors conducted
by the Profit Sharing/401(k) Council of America (PSCA)
in early 2007, 22 percent of employers said they already offer the Roth 401(k),
9 percent say they will and 51.4 percent are considering the option.
Foster, national spokesman for retirement plans at The Hartford, says that 2,670
of some 13,000 plans have implemented the Roth 401(k) option so far.
He says the lag time caused by the sunset provision, compounded by a delay in
getting regulatory matters defined by the Department of Labor, contributed to
undue hesitation on the part of plan providers and employers alike.
says the main obstacle preventing employers from offering the Roth 401(k) was
the perception that it would be a record-keeping nightmare. "Who was going
to keep track of the five-year rule and so on," he says. "But as I tell
employers, the only real decision you have to make is whether you want it or not;
we'll do all the leg work, all the reporting, we'll track the five-year rule,
all that stuff. When they realize that they don't have any responsibility in tracking
all this stuff and they realize this is a pretty good tool for their employees,
then they come around."
Roth 401(k) material?
Ted Roman, a fee-only financial adviser in
San Diego, Calif., says he's high on Roth 401(k)s, even if most of his clients
are not yet aware of them.
percent of companies offer the 'Roth
401(k),' 9 percent intend to and 51
percent are considering the option.”
"I really like them for their
flexibility. The fact that the money comes out tax-free is great. If you're going
to be in the same or lower tax bracket when you put the money in than when you
take the money out and you have a long enough time horizon, you're certainly going
to come out ahead," he says.
Foster says one group sure
to embrace Roth 401(k)s is the pool of highly compensated individuals who previously
were locked out of Roth IRAs due to their income caps (in 2007, $114,000 for singles,
$166,000 for a married couple filing jointly).
compensated people are saying, 'Wow, this is a great way for me to take some of
the accumulation that was going to be taxable to me and my beneficiaries and create
this tax-free accumulation bucket. It gives them some tax control on the other
end," says Foster.
The other group that stands to benefit
most from Roth 401(k)s are those just starting their
careers, according to PSCA vice president Ed Ferrigno.