Plan sponsors have several ways to enhance their defined contribution (DC) programs, making them more suitable for an evolving and diverse workforce. Just as they have emphasized the importance of diversifying investment portfolios, plan sponsors should also guide participants to consider a mix of pre-tax and post-tax contribution options.
Designated Roth accounts in DC plans can help enhance deferral and distribution tax flexibility, which can be appealing to both baby boomers nearing retirement and younger workers at the beginning of their careers.
While having the option to pull money from a tax-free or a tax-deferred bucket helps retirees better manage their taxable income, participants are generally not taking advantage of Roth accounts. Only 21% of eligible participants made Roth contributions in 2022 even though 89% of plan sponsors offered a Roth option.1
Roth accounts can offer advantages to a larger set of participants than you may think. Among those who are most likely to realize tax benefits are younger/early career employees, highly compensated employees who aren’t eligible for Roth IRAs, and retired participants.
Click here to explore these topics in detail, along with:
How Los Angeles County adapted its participant communications strategy during the pandemic
Read how Los Angeles County adapted to virtual communications during the pandemic, and the approach they take to encourage employees to stay in the DC plan(s) post retirement.
What the latest DOL ESG proposal means for plan fiduciaries
Learn about the latest US Department of Labor (DOL) environmental, social and governance (ESG) proposed regulation that governs selection of plan investments.
Mind the gap
DC plan sponsors and their advisors may want to reexamine their mid-cap offerings to help expand on the full potential the asset class offers.
The new cyber reality: Helping participants combat cybercrime
Learn what steps plan sponsors should take to help participants combat cybercrime and protect their retirement plan savings.
Source: PSCA, 66th Annual Survey of Profit Sharing and 401(k) Plans, reflecting 2022 plan experience (survey of 687 plan sponsors), latest data available.
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Diversification does guarantee a profit or eliminate the risk of loss.
Invesco does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state tax laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation. The tax information presented is based on current interpretation of federal income tax law. State and local income tax laws may differ from federal income tax law.
The opinions expressed are those of the author, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.
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