A survey by the Plan Sponsor Council of America regarding 401k and profit-sharing plans of 2012 indicates that 54% of plans now offer a Roth 401(k) deferral option. This option was made even more popular with new rules allowing in plan conversion of pre-tax 401(k) funds to Roth 401(k) without requiring participant eligibility for distribution. “More Plan Sponsors Opt for Roth Conversions” from Employee Benefit News recommends participants use this option as a tax strategy, especially those company executives participating in the plan who might fluctuate between large losses and large gains from year to year. A Roth 401(k) can be used to offset losses by recognizing deferrals as taxable income.
It is important, however, for participants to realize that this practice presupposes that tax rates are at historic lows and tax rates will be higher in participants’ retirement years. This strategy is a gamble for plan participants. As such, plan administrators are reporting a lower percentage of participants using Roth 401(k)s than the percentage of plans that offer them.
If your plan does offer a Roth 401(k) option, how many participants have used it?