Roth 401(k)s Are Catching On, Report Shows

Those under age 30 who earn over $40,000 are most likely to favor the Roth option

By Stephen Miller Sep 22, 2010

More U.S. employers are offering a Roth 401(k) option, according to a September 2010 report by Hewitt Associates, The Role of Roth 401(k) in Retirement Savings. Approximately 29 percent of U.S. employers offered a Roth 401(k) in 2010, and 25 percent say they are likely to add the feature, the consulting firm's research reveals.

A Roth 401(k) feature allows participants to make after-tax salary deferral contributions to their 401(k) plan; these funds grow tax-free, with tax-free distributions in retirement. With a traditional 401(k) plan, employees make salary deferral contributions on a pre-tax basis; while they don't pay taxes on the money they contribute into the account, all distributions are taxed at income-tax rates when withdrawn at retirement (to learn more on how Roth 401(k)s work, see "The Roth401(k): A 'value Add' for Your Employees").

Some plan sponsors haven't believed that a significant number of their employees would use a Roth feature if it were available. As a result, implementation has been slow, according to Hewitt's findings. However, now that early adopters of Roth 401(k)s have several years of use data, a clearer picture of strong use by plan participants is emerging.

Research Highlights

Among the research findings:

  • Use by participants. 7.4 percent of participants make Roth 401(k) contributions when available. Among newly enrolled workers, nearly 13 percent opt for a Roth.
  • Youth leads way. Younger participants are most likely to use a Roth 401(k). When available, 16.6 percent of workers in their twenties elect to use a Roth 401(k) vs. only 4.2 percent of those in their 50s. This is consistent with the premise that young workers tend to have lower current tax rates (correlating to low wages) and will benefit from a long time horizon for Roth assets to accumulate with earnings—a nest egg available for tax-free withdrawals at retirement.

Percentage of Participants Using a Roth 401(k), by Age

20 to 29 years old


30 to 39


40 to 49


50 to 59




Source: Hewitt Associates.

In addition, young participants are more likely to invest exclusively in a Roth account rather than splitting contributions between Roth and traditional 401(k) accounts, compared to older participants. Among those in their twenties, 63 percent invest solely in a Roth 401(k) account vs. only 30 percent of those in their 50s.

Salary Matters

Those earning between $60,000 and $80,000 had the highest usage of a Roth 401(k). However, considerable adoption was seen in all income levels above $40,000.

Percentage of Participants Using a Roth 401(k), by Salary

$20,000 to $39,000


$40,000 to $59,000


$60,000 to $79,000


$80,000 to $99,000




Source: Hewitt Associates.

When coupled with the age-related findings above, it's clear that participants under age 30 who earn over $40,000 would be most likely to favor the Roth option.

Higher Contribution Rates

On average, Roth contributors defer a combined 10.8 percent of their pay to their 401(k)s—considerably higher than the average total salary deferral rate of 8.1 percent.

When given the option of contributing to a Roth 401(k) and/or a traditional 401(k), the average salary deferral rate among those contributing exclusively to a Roth 401(k) was 9.7 percent. The average salary deferral rate for those splitting their contributions between Roth and traditional 401(k) accounts was 11.6 percent. Older employees with higher incomes are more likely to split their contributions and to take advantage of immediate tax deferral.

"Given its relatively short history, a Roth 401(k) option has proved beneficial to a meaningful segment of plan participants," according to Hewitt's analysis. "Further, having one may actually increase participants' retirement savings."

Given the increasing prevalence of the Roth option, the report concludes, it is "likely to become an inherent feature in all plans."

Stephen Miller is an online editor/manager for SHRM.

Related Articles:

The Roth401(k): A 'value Add' for Your Employees, SHRM Online Benefits Discipline, updated August 2010

Roth401(k)s: Slow Start, but Welcome Where Tried, SHRM Online Benefits Discipline, updated January 2006

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