More employers offer a Roth 401(k) — and a Secure 2.0 change may prompt more workers to use it

cnbc.com:

More workers are getting access to a Roth savings option in their 401(k) plans.

In 2022, 89.1% of employers that sponsor a 401(k) plan allowed workers to set aside money in a Roth account, according to a recent poll by the Plan Sponsor Council of America, a trade group.

That share has increased significantly over the past decade: Just 58.2% of employers made a Roth 401(k) available in 2013, PSCA found. It also rose slightly over the past year, from 87.8% in 2021.

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A Roth is a type of after-tax account. Workers pay tax up front on 401(k) contributions, but investment growth and account withdrawals in retirement are tax-free. This differs from traditional pretax savings, whereby workers get a tax break upfront but pay later.

«Offering Roth as an option is a relatively easy-to-administer customization that offers employees more flexibility in their retirement savings approach,» Hattie Greenan, PSCA research director, explained in an email. «Offering this choice has become a best practice over the last 10 years.»

However, Roth uptake by employees remains relatively low by comparison: About 21% of workers made a Roth contribution in 2022, according to PSCA data. By comparison, 72% saved in a traditional pretax account. (Workers can opt to use either, or both.)

There are a few reasons why usage likely doesn't correspond with overall availability.

For one, automatically enrolling employees into 401(k) plans has become popular: 64% of plans used so-called auto enrollment in 2021, PSCA found.