Offer your employees another way to save by adding a Roth option to your company’s 401(k)
WHAT IT IS
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earnings toward retirement—and face no additional taxes on those savings or any investment earnings when the money is withdrawn during retirement.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).
ADVANTAGES 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 to your 401(k) plan allows participants to save into two accounts with different tax benefits.
- Employees interested in purchasing a first home can use the money in their Roth 401(k) accounts toward a house, penalty-free. It’s not a loan, either, so no taxes are due for early withdrawal and 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—$18,500 versus $5,500 for workers under age 50 in 2018.