Although Roth 401(k) features became effective Jan. 1, 2006, few employers immediately implemented them, since they were new and recordkeepers were still developing systems to accommodate the new feature.
While Roths are beginning to gain traction, the presidential election may affect their growing popularity, as the new president - whomever he may be - likely will increase tax rates on individuals earning more than $250,000. With the tax increase, many senior executives no longer will see the benefit of contributing to a Roth 401(k) and will revert to traditional pretax 401(k) contributions to save current income taxes.
If Roth 401(k)s are not beneficial to senior executives, who often are the decision-makers with regard to 401(k) plans, it is highly possible that Roth 401(k)s will go the way of the dinosaur, or at least significantly decline in utilization.
Highly compensated individuals may wish to consider making Roth 401(k) contributions for 2008 and possibly 2009, when the maximum federal effective tax rates are below 40%. Thereafter, when rates inevitably increase, executives will already have Roth 401(k) contributions growing tax-free. HR/benefits professionals may wish to highlight this issue for senior executives before tax hikes would be effective, probably in 2010.
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