Young, Midlevel Earners Most Attracted to Roths

Half of 401(k) plans now include Roth accounts

By Stephen Miller, CEBS May 5, 2014

Over the past seven years, the percentage of U.S. employers providing workers with the option of contributing to a Roth 401(k) or similar plan has grown nearly fivefold, and Roth accounts are now offered by half of all qualified defined contribution plans, according to research by Aon Hewitt.

The consultancy's April 2014 report, Roth Usage in Defined Contribution Plans, reveals that companies and employees are increasingly receptive to Roth 401(k)s, in which after-tax dollars are contributed via salary deferral and later withdrawn with earnings tax-free during retirement. Traditional non-Roth 401(k)s, in contrast, are funded with before-tax dollars, and all withdrawals are taxed as income.

"Because of the potential tax benefits, employees increasingly see Roth accounts as attractive savings options and we anticipate that the use of Roth features will continue to rise," said Rob Austin, director of retirement research at Aon Hewitt.

Savings and Participation Rates

In 2013, workers saving to a Roth account contributed an average of 10.2 percent of their salary, compared to just 7.7 percent of salary for non-Roth savers.

Moreover, Roth usage has steadily increased. In 2012, the average Roth participation rate was just over 8 percent of 401(k) plan participants—but by the beginning of 2014, 11 percent of participants were contributing money to a Roth account when given the opportunity to do so.

However, use of the Roth option at any particular company can be wide-ranging, with participation rates of 4 percent to nearly 25 percent, the study reveals. Communication and education play a vital role in demonstrating the value of this benefit (see "Best Practices," below).

Participation over Time

Most companies with low Roth participation rates added the feature only recently. Generally, in the first year after adopting a Roth option, fewer than 6 percent of workers use it. But participation steadily grows the longer that a Roth account is available in the plan. Among companies that offered the Roth for seven or more years, the average participation rate rose to over 18 percent.

Roth 401(k) Participation—By Time Since Adoption

1 year


2-3 years


4-6 years


7+ years


Source: Aon Hewitt's analysis of more than 3.5 million eligible participants in over 125 defined contribution plans.

Participation by Age and Salary

Roth 401(k)s are an especially attractive option for young workers with more time to take advantage of tax-free account growth. When available, more than 17 percent of plan participants in their 20s contribute to the Roth option, compared with fewer than 9 percent of workers in their 50s, indicating that Roth availability is important for recruiting and retaining Generation Y and Millennial employees.

Roth 401(k) Participation—By Age

Age 20-29


Age 30-39


Age 40-49


Age 50-59


Age 60+


Source: Aon Hewitt.

Interestingly, participants with midlevel earnings were more likely than either lower-income workers or highly compensated employees to choose a Roth 401(k) account when provided. "Young workers and midlevel earners are more likely to anticipate future tax bracket increases, so they are taking actions now that are likely to benefit them down the line," Austin explained.

Roth 401(k) Participation—By Salary

$20,000 to $39,000


$40,000 to $59,000


$60,000 to $79,000


$80,000 to $99,000




Source: Aon Hewitt.

Best Practices

Employers that add Roth 401(k) options and expand the availability of in-plan conversions from traditional to Roth accounts would be wise to follow best practices regarding communication and education, as highlighted in the report. These recommendations include the following:

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.

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