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).

Calculate My FREE Annuity Quote Now!

  • Optional: For a 2-person annuity (joint lives)

No agent will call you

Your privacy is guaranteed.
Find advanced calculator options here.

Get quick answers to your annuity questions: Call 800-872-6684 (9-5 EST)

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 While taxes will be due on any cash withdrawn from a 401(k) in retirement, funds held in a Roth 401(k) can be withdrawn tax-free.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.

Testimonial Image
We wanted to establish a bit of extra income. There was a good recommendation about on CNN. We also liked that we could see excellent reviews about them on Google. They were very thorough from our first inquiry to when we decided to buy our annuity from Mass Mutual. They always answered our questions promptly and followed up with the insurance company, too. We have been receiving our monthly payments since last November and couldn’t be happier. What more can we say?
Keith and Samantha Isley
Read 650+ verified reviews
Second, some employers fear that lower-income workers will accuse the company of offering a tax perk to higher-income employees, such as company executives. However, the truth is that the Roth 401(k) is not aimed at higher-income workers; the person most likely to benefit from the new plan is one currently within the 10 to 15 percent tax bracket now who can anticipate being in a higher tax bracket in retirement. This is a category into which many lower-income workers can easily fall.

We'd love to hear from you!

Please post your comment or question. It's completely safe – we never publish your email address.

Add a new comment:(Allowed tags: <b><i><br>)

Comments (0)