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Employers dragging their feet on Roth 401(k)
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"There are excellent benefits for younger employees, and it offers exceptional benefits for high income earners who don't have the ability to save in a Roth IRA because of the income limitations. So, for young, old, high income and moderate income -- all can share the benefits of a Roth.

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"I'm sure that way back when, there were employers who were asking 'Why should we adopt the 401(k)?' We as advisers and the financial media need to get the word out so participants can go to employers and request adding the Roth feature to the 401(k)."

Scott Revare is CEO and co-founder of Smart 401(k), an online advisory service headquartered in Overland Park, Kan., that advises people on how to allocate their 401(k) money.

"A rough estimate is that less than 10 percent of the 1,400 plans we see have expressed that they're moving forward with the Roth option in their retirement plans. I've seen a high level of interest from participants and a high level of hesitation from employers. There are questions about the changes to payroll and record keeping, handling pretax and after-tax.

"If they're just worried that employees would be confused, that's not the right reason. A portion of people are confused, but an equal number of people aren't confused and are very interested. It's a benefit to be able to contribute and not worry about taxes down the road. There are a lot of people who think taxes will only go up from here and that people should lock it in now."

Rick Meigs, president of, says many employers are taking a wait-and-see position.

"Employers are never sure whether these things are going to be popular and whether they should go to the expense. They've gone through this before and then they get low participation. One example is the ability for people age 50 and above to make additional contributions. Ninety percent of plan sponsors modified their plans because of all the hype and the perceived interest by employees. But only 5 percent to 10 percent of the participants have used it."

While employers figure out what they want to do, employees can prepare themselves by considering the pros and cons of adding a Roth component to their retirement portfolio.

A Roth adds tax diversification. More than likely most of the balance in your retirement account is pretax money that will be taxed as you withdraw it. Even if you expect your retirement income to be 25 percent or 30 percent less than current income, it can still be a leap of faith to decide your future tax rate will be lower. A Roth provides a hedge against possibly higher taxes.

If the Roth interests you, talk to your employer or retirement plan administrator about adding it to the 401(k). If it looks as though your employer won't add it, do the next best thing -- set up a Roth IRA on your own and get the same benefits. You won't be able to contribute as much money, but it's a good start.'s corrections policy -- Posted: Jan. 20, 2006
More stories by Laura Bruce
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