Plan sponsors have several ways to enhance their defined contribution (DC) programs, making them more suitable for an evolving and diverse workforce. Just as they have emphasized the importance of diversifying investment portfolios, plan sponsors should also guide participants to consider a mix of pre-tax and post-tax contribution options.
Roth option: A flexible tax solution
Designated Roth accounts in DC plans can help enhance deferral and distribution tax flexibility, which can be appealing to both baby boomers nearing retirement and younger workers at the beginning of their careers.
Participants aren’t leveraging the Roth contribution option
While having the option to pull money from a tax-free or a tax-deferred bucket helps retirees better manage their taxable income, participants are generally not taking advantage of Roth accounts. Only 21% of eligible participants made Roth contributions in 2023 even though 93% of plan sponsors offered a Roth option.1
Roth accounts offer potential benefits for every career stage
Roth accounts can offer advantages to a larger set of participants than you may think. Among those who are most likely to realize tax benefits are younger/early career employees, highly compensated employees who aren’t eligible for Roth IRAs, and retired participants.
Click here to explore these topics in detail, along with:
- What participants need to know about in-plan Roth conversions.
- SECURE 2.0 Act provisions that have impacted Roth savings.
- Ways in which a segmented auto-enrollment strategy could help more participants reduce their tax liability in retirement.
- Ways to get creative when integrating Roth options into your plan to encourage adoption.
