Roth Option

In an effort to create a retirement program that meets the needs of a diverse employee population, Roth deferals is an additional plan element that should be considered. The number of plans permitting Roth contributions continues an upward trend, reaching 60 percent after nine years of availability, according to The Profit Sharing Council of America’s 58th Annual Survey.

What is the difference between pre-tax and Roth?

For Federal tax purposes in most states, pre-tax contributions are deducted from your employees’ taxable wages, while Roth contributions are included in their taxable wages. Pre-tax contributions are taxed as income at withdrawal while Roth contributions plus earnings are free from Federal income tax at withdrawal, provided the Roth distribution is “qualified.”

For more information about the Roth feature, read Is the Roth Option Suitable for Your Plan.

If your plan already has Roth, please share this FAQ on the differences between Roth and pre-tax deferrals with your employees.

Investors should consider their options carefully, Roth is not for everyone. Investing involves risk including potential loss of principal.