4 Reasons to Offer Your Employees a Roth 401(K)

By Wednesday, February 11, 2015 0 No tags Permalink

If your business has grown to such a size that you can begin offering your employees 401(K)’s, this is truly a thing to celebrate. For one, your business has grown to a place of relative financial security never before seen in its existence. For another, your employees can now enjoy some added benefit for working for a secure, growing company. They will be proud to have the jobs that they do, willing to work longer and harder without you having to provide any other impetus. If you already have a traditional 401(k), you may offer more to your employees with a Roth 401(k). They’ll certainly know the difference, and thank you for offering both. Here are some of the benefits for your employees.

 

1)    No Taxes When They Retire. This is the key benefit of the Roth approach. Sure, contributions are taxed now, but when you start receiving distributions at 59 ½, there will be no taxes at all. This is a great thing for your employees. The traditional 401(k) model (taxes deferred until retirement) benefits only those moving from a high tax bracket to a lower one at retirement. For the rest, Roth is definitely the way to go.

2)    Less to Pay on Income Tax. By the time your employees retire, they will hopefully have set up multiple ways to bring in money. They will have investments, real estate, social security, and other forms, all of which are subject to income tax. If they have some income that is not subject to income tax, in the form of the Roth 401(k), this will help matters considerably.

3)    Low Tax Bracket Employees Will Save a Lot. Your lowest paid employees will have most to celebrate about the introduction of a Roth style 401(k). If they pay 15% on $10,000 saved in one year, they will have been taxed $1500. That’s a tidy sum. But if they find themselves in a higher tax bracket come retirement, that amount could grow to $2300 or more, depending in which tax bracket they find themselves. Give them the option to pay now and save later. This is a retirement account, after all. Many will prefer to save during retirement.

4)    Your Employees Can Grow the Money Their Whole Lives. You don’t hear this point discussed much, but Roth 401(k)s never have to be distributed during the lives of their holders. Many decide to let the money accumulate until they pass in order to give the money to their children or grandchildren. Many other tax-haven accounts will penalize the holder if they do not begin drawing income from the account by a certain age. Not so with Roth.

 

There are even more reasons to at least offer a Roth 401(k) at your company, but these should be sufficient to make you consider the option. Your employees can quickly learn how the Roth style can give them added benefit over the already generous traditional 401(k). You’ll be happy to know that your employees are better prepared for their retirement, making them happier and more productive in the here and now.

 

 

 

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