Roth 401(k)

Offer your employees another way to save by adding a Roth option to your company’s 401(k)

WHAT IS A ROTH 401(K)?

A Roth option for your 401(k) plan allows you and your employees to contribute post-tax earnings toward retirement—and face no additional taxes on those savings or any investment earnings when the money is withdrawn during retirement.

Adding a Roth option is a cost-effective way to make your company-sponsored 401(k) plan more attractive because a Roth option benefits two constituents at your company:

The business owner(s) and other highly-compensated employees who make too much money to contribute to a Roth IRA. With a Roth 401(k), there is no income cap (sometimes referred to as a “phase out”) for contributing to a Roth 401(k). Adding a Roth means owners will have a new tax diversification strategy.
Younger employees who have a long time before they retire. Younger employees may also pay a lower tax rate now than they will further in their careers (or during retirement).

Watch this video for answers to frequently asked questions about Roth 401(k)

Your Money Minute video features one of our Retirement Counselors discussing when a Roth 401(k) is right for participants.

Watch our Roth 401(k) Video

ADVANTAGES OF ROTH 401(K) FOR you and your business

Roth 401(k) accounts help attract employees—particularly Millennials and high-earners.

Adding a Roth 401(k) costs very little, as you’re simply adding a feature to your existing company 401(k). Depending on your contracts with your other service providers, it may be free.

ADVANTAGES for you and your Employees

Adding a Roth option allows participants to save into two accounts with different tax benefits.
If permitted by the plan, older employees can use the money in their Roth 401(k) toward purchasing a house, tax- and penalty-free. It's not a loan, either, so no money needs to be paid back.
Retirement withdrawals from Roth accounts are not included in an individual’s Adjusted Gross Income algorithm during retirement. This algorithm determines whether certain government subsidies, such as a healthcare subsidy, will be available during retirement.
Roth 401(k) accounts have higher maximum contributions limits than Roth IRAs—$19,500 versus $6,000 for workers under age 50 in 2021.

HOW IT WORKS

FOR YOUR EMPLOYEES

Contributing to a Roth 401(k) is similar to contributing to a traditional 401(k), with one distinct difference: Employees make contributions to their Roth accounts after they’ve already paid taxes on that money, whereas traditional 401(k) contributions are made pre-tax.