To help employees understand and use Roth 401(k) contributions, organizations can:

Better Actuaries, Better Outcomes
  • Communicate program features and benefits clearly and regularly. The value of Roth contributions may change over time even for the same employee. Segment employees and identify their needs based on life stages and other characteristics. Tailor short and action-oriented messages to these segments.
  • Provide effective retirement planning modelers to help employees better understand their options. Your modelers should include total estimated retirement income, pay growth, inflation, tax effects and health care costs.
  • Implement a process to monitor employee financial well-being through plan-level analysis focused on when employees will be financially ready to retire.
  • Talk to your actuary so you understand the considerations facing your employees. Roth 401(k) contributions offer tax diversification during retirement, greater distribution flexibility and options for personal income taxes, and can help employees avoid the “tax torpedo” or qualify for subsidies under the Affordable Care Act.

Future tax law changes may bring changes to the 401(k) contribution option. However, savvy plan sponsors are taking measures to help employees better understand and use Roth 401(k) contributions effectively.