More DC Plan Sponsors Offering Roth Accounts to Participants
PSCA Executive Director Jack Towarnicky outlines scenarios for which Roth accounts could be beneficial for defined contribution plan participants.
Roth availability has doubled in the past decade, the Plan Sponsor Council of America (PSCA) found. In 2016, 63.1% of plans offered a Roth, up from 30.3% in 2007.
In 2016, 7.2% of plans added Roth as an option. Among plans with more than 5,000 participants, 11.2% added a Roth. Among those eligible to participate in their plan in 2016, 18.1% of participants made Roth contributions. The highest percentage of participants making Roth contributions was in plans with one to 49 participants (29.2%).
Twenty-one percent of all plans monitor investments of Roth deferrals.
“In the 12 years since Roth became available as an options where you already offer a 401(k) or 403(b) with pre-tax contributions, Roth features have demonstrated their value,” says PSCA Executive Director Jack Towarnicky.
Towarnicky says Roth could be an attractive option in the following scenarios for workers:
- Just starting their careers and expect their income tax rate could increase in the future;
- Are employed in a state that currently does not have an income tax;
- Want to build assets that will not be subject to minimum required distributions;
- Are limited by the IRS contribution maximum of $18,500 (and the additional $6,000 catch-up maximum for those 50 and older) and know that an equal amount of contributions on a Roth basis represents a significantly greater savings rate;
- Want to manage their taxable payouts in retirement with an eye to avoid Medicare Part B and Part D income surcharges;
- Are highly paid and therefore not eligible to contribute to an individual retirement account (IRA) on a Roth basis; and/or
- Want to convert taxable monies to a Roth basis today, but they are not currently eligible for a distribution that can be rolled over and converted to a Roth IRA where plans with Roth features can permit in-plan conversions at any time.
Information on how to purchase the full findings of this report, PSCA’s 60th Annual Survey, can be found here.
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