Why are 401k ROTH rare?
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Why are 401k ROTH rare?
it seems to me that it is not as common for an employer to offer a 401k ROTH option...
All of my companies (they are all very large companies) have only offered the traditional 401k.
Are there any specific reasons for this? Do they somehow benefit more if employees use the traditional rather than roth 401k?
All of my companies (they are all very large companies) have only offered the traditional 401k.
Are there any specific reasons for this? Do they somehow benefit more if employees use the traditional rather than roth 401k?
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Re: Why are 401k ROTH rare?
Paperwork. For what it's worth 100% of my employers have offered a Roth option....
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Re: Why are 401k ROTH rare?
A couple of possible reasons -
Roth 401k has been around maybe 10 years, maybe 15? HR departments move slow.
A roth 104k might not be as appealing to some. Try maxing out the roth option vs the traditional option, employees probably like and adopt the traditional version more broadly (since your take home pay is greater). If company A looks at company B, and company B has a low adoption of Roth 401ks, then there is less of a rush. Also, you get a solid way to avoid taxes this year with traditional. The roth option you are really kind of guessing what the future holds.
Roth 401k has been around maybe 10 years, maybe 15? HR departments move slow.
A roth 104k might not be as appealing to some. Try maxing out the roth option vs the traditional option, employees probably like and adopt the traditional version more broadly (since your take home pay is greater). If company A looks at company B, and company B has a low adoption of Roth 401ks, then there is less of a rush. Also, you get a solid way to avoid taxes this year with traditional. The roth option you are really kind of guessing what the future holds.
- whodidntante
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Re: Why are 401k ROTH rare?
Just speculating.
A Roth option adds a bit of complexity and that costs someone somewhere money, which might mean your employer pays. But I think the reason is that employees don't really ask for it. Some barely know what a 401k is, and aren't equipped to tell their employer that they want specific changes to it. And for higher income people, Roth contributions are not as good as pre-tax contributions.
A Roth option adds a bit of complexity and that costs someone somewhere money, which might mean your employer pays. But I think the reason is that employees don't really ask for it. Some barely know what a 401k is, and aren't equipped to tell their employer that they want specific changes to it. And for higher income people, Roth contributions are not as good as pre-tax contributions.
- rcjchicity
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Re: Why are 401k ROTH rare?
My employer started offering Roth 401k's within the past 5 years, but I would guess the usage is very low. They did very little promoting of the option when it was added.
It adds complexity to the investor too because while the employee contribution is to the Roth 401k, the employer contribution goes into a traditional 401k. Plus, people (myself included) want the tax break now rather than in the future.
It adds complexity to the investor too because while the employee contribution is to the Roth 401k, the employer contribution goes into a traditional 401k. Plus, people (myself included) want the tax break now rather than in the future.
Re: Why are 401k ROTH rare?
Two things:
1. As mentioned earlier, Roth 401ks are newer than traditional 401ks.
2. For the great majority of people, contributing to a Roth 401k instead of a traditional 401k is a bad idea. In general terms, it is only the better choice if your current (marginal) income tax rate is less than your tax rate in retirement.
1. As mentioned earlier, Roth 401ks are newer than traditional 401ks.
2. For the great majority of people, contributing to a Roth 401k instead of a traditional 401k is a bad idea. In general terms, it is only the better choice if your current (marginal) income tax rate is less than your tax rate in retirement.
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Re: Why are 401k ROTH rare?
I actually asked my benefits leader that directly. She said there is concern on staff inadvertantly electing a Roth meaning to do a traditional. The Investment Committee has chosen to not offer it as they feel the risk outweighs the few requests they have received. I said log me as another request!
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Re: Why are 401k ROTH rare?
Notwithstanding the OP's anecdotal experiences with 401k plans, Roth Designated accounts are far from rare.
There are surveys from this year that show > 50% of 401k plans with > 1,000 participants have Roth Designated accounts. They do tend to be less common in small and medium plans, but even there they are far from rare.
There are surveys from this year that show > 50% of 401k plans with > 1,000 participants have Roth Designated accounts. They do tend to be less common in small and medium plans, but even there they are far from rare.
Re: Why are 401k ROTH rare?
I contribute to the Roth on my 401(k), and you do not get a tax break but hey that money is mine tax free after five years, assuming the tax laws have not been changed.
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Re: Why are 401k ROTH rare?
I contribute to my employers Roth 401K.
(I would rather pay the taxes now...than later)
(My tax rate is really low) & (will probably go up in the future).
How it works is, I contribute to the Roth 401K (5% of total pay).
Then my employer matches 80% of my 5% into the
regular 401K so my employer can write off the match.
In effect I have 2 401K's. (Roth 401K, my contribution) &
(regular 401K for the company match).
Someday I can rollover my Roth 401K into my Roth IRA
with no tax consequence. The employer's 401K will be
taxed someday. Both 401K's are in the same fund at
American Funds with a high ER.
(I would rather pay the taxes now...than later)
(My tax rate is really low) & (will probably go up in the future).
How it works is, I contribute to the Roth 401K (5% of total pay).
Then my employer matches 80% of my 5% into the
regular 401K so my employer can write off the match.
In effect I have 2 401K's. (Roth 401K, my contribution) &
(regular 401K for the company match).
Someday I can rollover my Roth 401K into my Roth IRA
with no tax consequence. The employer's 401K will be
taxed someday. Both 401K's are in the same fund at
American Funds with a high ER.
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Re: Why are 401k ROTH rare?
My experience has been that the availability far exceeds the utilization. Presumably for all the reasons noted above.Spirit Rider wrote: ↑Wed Jan 10, 2018 1:57 pm There are surveys from this year that show > 50% of 401k plans with > 1,000 participants have Roth Designated accounts. They do tend to be less common in small and medium plans, but even there they are far from rare.
Re: Why are 401k ROTH rare?
Our experience is that most, if not all, plans offer a Roth option. Most employees at enrollment select the Roth is they are under age 40. I believe low utilization is due to poor communication by advisor, HR or web site - or all. Feedback is that some lower paid employees do not find Roth appealing after the fact because it takes more from their pay check.