Age Affects Roth 401(k) Contributions, Hewitt Survey Finds

By Staff Report

Sep. 14, 2010

Only a small percentage of employees contribute to Roth 401(k) plans, with participation related directly to their age, according to an analysis.

In an examination of 20 Roth 401(k) plans with just over 500,000 eligible participants, Hewitt Associates Inc. found that 16.6 percent of employees age 20 through 29 made contributions, as did 9.4 percent of employees age 30 through 39.

By contrast, 6 percent of employees age 40 through 49 made contributions as did 4.2 percent of those age 50 through 59, and 2.6 percent of employees age 60 and older.

That finding, Lincolnshire, Illinois-based Hewitt Associates noted, “is consistent with the premise that younger workers will benefit more from Roth contributions.”

Unlike traditional 401(k) contributions, which are made with pretax dollars and then taxed when withdrawn, Roth 401(k) contributions are made with after-tax dollars and investment earnings can be withdrawn tax-free. Investment earnings, though, cannot be withdrawn tax-free until five years after an employee made the first contribution and after he or she reaches age 59½.

For young employees, the tax advantages of Roth 401(k) contributions may be far greater than pretax contributions to standard 401(k) plans. Young employees could accumulate decades of investment gains on their Roth contributions and never be taxed on those gains.

The analysis also found that participation increases steadily in the years after adoption of a Roth 401(k) plan. For example, an average of 7 percent of employees made contributions one year after the plan was adopted, while 15 percent of employees made contributions three years after the feature was added, according to the analysis.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail

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