Roth options have increased significantly in availability and usage over the past decade, according to a recent survey by the Plan Sponsor Council of America (PSCA).
Results from the 60th Annual Survey of Profit Sharing and 401k Plans show that Roth was offered in about 63 percent of plans in 2016 compared to only around 30 percent in 2007.
The study took a closer look at availability and usage of Roth by plan group size and found that “7.2 percent of plans added Roth as an option in 2016, with the largest increase at 11.2 percent for plans with more than 5,000 participants.”
In spite of that, the survey found plans with one to 49 participants are utilizing Roth options at a higher rate than any other group. Nearly 30 percent of eligible employees within the smallest plan group size are making Roth contributions.
Among all eligible employees who made 401k contributions in 2016, 18.1 percent used a Roth savings vehicle.
“In the 12 years since Roth became available as an option where you already offer a 401k or 403b with pre-tax contributions, Roth features have demonstrated their value,” Jack Towarnicky, PSCA executive director, said in a statement.
He went on to outline a few scenarios in which these types of contributions “might be preferable to pre-tax contributions.” Roth contributions can be particularly appropriate for workers who:
- are just starting their careers and may currently be subject to a lower marginal income tax rate
- seek tax diversification as a hedge against potentially higher future income tax rates
- are employed in a state that doesn’t currently have an income tax
- want to build a legacy accumulation of assets that will not be subject to minimum required distributions
- are limited by the contribution maximum of $18,500 and/or the catch-up contribution maximum of $6,000, and know that an equal amount of contributions on a Roth basis represents a significantly greater savings rate
- want to manage taxable payouts in retirement with an eye on avoiding Medicare Part B and Part D income surcharges
- are highly paid and ineligible to contribute to an IRA on a Roth basis
- want to convert taxable monies to a Roth basis today, but are not currently eligible for a distribution that can be rolled over and converted into a Roth IRA (plans with Roth features can permit in-plan conversions at any time)
Jessa Claeys is a writer, editor and graphic designer.
