More companies are interested in adding a Roth 401(k) feature to their retirement plan after a law made changes to the tax code permanent, according to a survey by the Profit Sharing/401k Council of America (PSCA).
The new Roth 401(k) feature was added to the Internal Revenue Code by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and became effective for taxable years beginning after December 31, 2005. Under a Roth 401(k), employees contribute to the accounts on an after tax basis, but qualified distributions of those contributions, plus earnings, are tax-free.
The EGTRRA provision allowing the Roth 401(k) was set to expire in a few years, but the Pension Protection Act (PPA) of 2006 made the rule permanent.
In PSCA's survey, 22 percent of 401(k) plans reported that they offer Roth designated accounts. Among companies who currently don't offer the Roth 401(k), 69 percent indicated that they are more likely to adopt the feature now that it has become permanent, the survey found.
"Anxiety over the Roth 401(k)'s 2011 sunset was a major concern among plan sponsors," says PSCA president David Wray. "The Roth 401(k) feature, like other provisions of the 2001 Tax Act that were scheduled to expire, will get greater attention now that the retirement provisions of that act have been made permanent."