Introducing the Roth 401(k)...or Not
Beginning in 2006, companies will have the chance to offer their employees a new kind of retirement strategy: the Roth 401(k) (nonprofit organizations will likewise be able to offer a version for 403(b) plans).
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In a nutshell, while a 401(k) plan allows workers to contribute pretax dollars, which are often matched by employers, the new Roth 401(k) will allow them to contribute post-tax earnings, without a matching contribution. Wherein lies the advantage of a Roth 401(k)? While taxes will be due on any cash withdrawn from a 401(k) in retirement, funds held in a Roth 401(k) can be withdrawn tax-free. For workers expecting to be in a higher tax bracket in retirement, the Roth 401(k) is an attractive option.
Law brought forth the Roth 401(k) in 2001, but in January 2006, the law will become reality.
Or will it?
A study of employers in the New York metropolitan area suggests that many companies will not offer the Roth 401(k) option in 2006. Another study concluded that only 6 percent of companies are planning to initiate the program in January, while 25 percent are still considering and 69 percent have decided against offering the program in 2006.
A couple factors are suspected to be at the heart of this unwillingness to act. First, making the Roth 401(k) plan available to employees is the responsibility of the employer, and the amount of labor that will be required to initiate the program, from payroll changes to benefit coordination, is unattractive to company management.
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