I was talking with one of my bosses yesterday at work (I have dozens, unfortunately, but I’m slowly working my way up the ladder… don’t worry!). This guy is one of the best around – at what he does and who he is. And he is always willing to share his opinions about life, money and business. So I decided to make him one of my money mentors. (He doesn’t know it, but that’s OK.)
Earlier in the day I saw this chart, which got me thinking quite a bit. I often wonder why more places don’t offer a Roth 401(k) option to their employees – especially considering the “consensus thinking” that, if taxes are likely to move in one direction, that direction is up, Up UP. So why not allow your employees have the choice of paying taxes now instead of later if they feel the same way?
And even for those who believe they will be in a lower tax bracket during retirement (i.e. they won’t make as much, so even if rates rise slightly their rate will go down because they won’t hit the higher brackets) offering both traditional and Roth 401(k) options allows more flexibility and (get this) CHOICE for the employees.
So if you believe taxes are going up, the Roth is for you. If you believe taxes will go down, maybe the traditional one is right for you. Of course, there are other details that may make one or the other “right” for you, but I’m isolating the tax implications here. Contribution limits, forced withdrawals, ability to withdraw for some non-retirement reasons, and other issues could make one of the four primary retirement-plan options (401(k), Roth 401(k), IRA and Roth IRA) better or worse for you.
Also, for a number of reasons, many folks who work for my company do not qualify for a Roth IRA, so the Roth 401(k) would be their only option for paying taxes now, but not later, with a retirement account.
First, we are in NYC, so salaries are bloated compared with other parts of the company (although standard of living is not necessarily bloated…). Second, most of the folks have post-graduate, professional degrees. Third, many folks also earn commissions or other bonuses for increasing the business of our company. Plus, the contribution limits are more than triple for the 401(k) compared to the IRA, so even if they could qualify for a Roth IRA, the Roth 401(k) could still be welcome.
So I decided to approach him and ask why the company wouldn’t provide a Roth 401(k) option. He didn’t know.
So I’m announcing it here, right now. I’m starting a campaign for one. I imagine the answer is going to be something to the effect of “it’s too expensive to administrate” but that hasn’t stopped me before. I’ve lead many (successful and unsuccessful) campaigns in my six-plus years here. I’ll keep you posted. I want one! (How bratty does that sound?!?!)
Do any of you have Roth 401(k)s at your company? My poor (actually not-so-poor) buddy J Money over at Budgets Are Sexy just got all of his benefits ripped away, so I’m not “complaining.” But that doesn’t mean we can’t improve our options over here, right? I guess I can count him as one in the “we don’t have a Roth 401(k)” column…
Until next time, put your credit card down and slowly step away from the mall!