Roth Popularity Continues Rapid Rise

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The popularity of Roth savings options in 401k plans is now at an all-time high, according to the Plan Sponsor Council of America (PSCA). The availability has doubled in the last 10-plus years with Roth after-tax contributions now allowed in 86.3 percent of plans, including 91.3 percent of large plans. In comparison, that’s up from 75% in 2019 and 49% a decade ago, according to the non-profit organization’s 64th Annual Survey of 401k Plans.

“The increase in Roth during the last decade is likely a combination of factors as employers look to provide more options to employees – it has clearly become an industry standard in recent years,” said Hattie Greenan, PSCA’s Director of Research and Communications. 

Notably, those in plans with 1 to 49 members had the highest contribution rate with more than 42% making the Roth after-tax contribution, compared to almost 26% of participants in all size plans taking a similar action. 

Overall, the PSCA report also found that a record number of employees are eligible for and participating in 401k plans, likely spurred by the 2019 SECURE Act provisions.

Though some have taken Roth contributions to the extreme, many workers are becoming enamored with after-tax account because of several features including paying taxes up front on 401k savings, but enjoying investment growth and account withdrawals in retirement, tax-free. 

According to the PSCA, the Roth is also becoming a more appealing option for a number of reasons: 

“We expect Roth availability to remain commonplace and expect to see an increase in use by participants over time as education around the tax benefits takes hold,” added Greenan. She noted a potential trend is that employers may consider Roth as a default option in automatic enrollment plans.

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