Recent research from the Plan Sponsor Council of America indicates that the availability of Roth investment options in 401(k) plans has increased significantly. 89.1% of employers sponsoring 401(k) plans permitted employees to contribute to a Roth account in 2022, representing a substantial increase from the 58.2% reported in 2013. The aforementioned expansion continued, albeit marginally, from 87.8% in the preceding year. This represents a transformation of ten years in the manner in which Roth 401(k) alternatives are made available to personnel in diverse establishments.
Roth 401(k) alternatives, which permit withdrawals in retirement and after-tax contributions to grow tax-free, are experiencing an increase in popularity. According to a recent survey by the Plan Sponsor Council of America, there has been a substantial rise in the percentage of employers offering Roth options in their 401(k) plans since a decade ago: 89.1% in 2022 compared to 58.2% this transition, acknowledged as an industry standard, provides employees with increased adaptability in their approach to retirement savings, setting it apart from conventional pretax alternatives.
Why some workers might miss out on a Roth 401(k)
Even though 89.1% of companies now offer Roth 401(k) plans, a recent study by the Plan Sponsor Council of America (PSCA) shows that only 21% of workers used this way to save money in 2022. Most people (72% of them) still chose to make standard pre-tax payments, often because they were automatically enrolled. PSCA says that the underutilization may be caused by misunderstandings about the efforts of high earners and a lack of motivation to change default settings. Changes to the law, such as Secure 2.0, pushing company matches to Roth accounts, and making higher earners make catch-up payments, are meant to get more people to use Roths.
When it makes sense to save in a Roth 401(k) or an IRA
As Roth 401(k) plans become more common, workers are told to make smart choices based on their present and future tax situations. Younger people who expect their wages to rise in the future might benefit from Roth payments because they grow tax-free. To use this approach, you must keep the Roth account open for at least five years and take the money out after age 59½. Roth 401(k)s offer freedom, such as not having to take required minimum payments starting in 2024, in addition to tax benefits. Combining pre-tax and Roth payments is what financial experts suggest as a way to spread risk and build a financial safety net.
