The number of 401(k) plans offering Roth savings options has increased significantly over the past decade, rising to 93% in 2023. While Roth contributions are on the rise, pretax contributions remain more popular. Financial advisors suggest considering your current and future tax brackets when choosing between Roth and pretax contributions.
About 93% of 401(k) plans offer a Roth savings option to workers, up from 62% a decade ago, according to the Plan Sponsor Council of America. About 93% of 401(k) plans offered a Roth account in 2023, according to an annual poll published in December by the Plan Sponsor Council of America, an employer trade group. That's up from 89% in 2022 and 62% a decade ago, according to the survey, which polled more than 700 employers with 401(k) plans of varying size.
A Roth is an after-tax account: Savers pay tax upfront on their 401(k) contributions but, with some exceptions, don't pay later when they withdraw money. By contrast, pretax savings have been the traditional route for 401(k) plans. Savers get an upfront tax break, deferring their tax bill on investment earnings and contributions until later, when they make withdrawals. It seems like many aren't taking advantage of Roth availability: About 21% of eligible workers made a Roth contribution in 2023, versus 74% who made a pretax contribution, according to PSCA data. Choosing which kind of 401(k) contributions to make — pretax or Roth — largely comes down to your current tax bracket and expectations about your future tax rate, according to financial advisors. This requires some educated guesswork. For example, many financial advisors recommend Roth accounts for those who are early in their careers, a point at which their tax rate is likely to be lower than in the future, when their salary will almost certainly be higher. 'We always recommend for someone who's in a low salary, typically the younger working folks,' said Olga Ismail, head of retirement plans consulting at Provenance Wealth Advisors. 'It's the lowest tax bracket you're ever going to be in, so why not take advantage of it now if you can?' she said. A Roth 401(k) also provides a unique savings opportunit
RETIREMENT SAVINGS 401(K) ROTH ACCOUNT TAX BRACKET FINANCIAL PLANNING
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