Here’s what you should know.

What is a Roth 401(k) Feature?

401(k) plans with Roth features allow participants to choose between making their contributions to the plan as a before-tax or Roth 401(k) contribution. The Roth 401(k) contributions are subject to current income tax, but the entire distribution from the Roth 401(k) account, including earnings, is tax-free.

Are Other Companies Offering Roth Features?

A recent Hewitt study found that 29% of mid to large sized employers are currently offering a Roth 401(k) feature, another 12% are very likely to add the feature during 2010, and yet another 13% are somewhat likely to add the feature in 2010.

But Do Participants Actually Use the Roth 401(k) Feature?

The Hewitt study reported that usage ranges between 4% to 22% of participants, with younger participants more likely to utilize the feature. Over half of the participants utilizing the feature made a combination of before-tax and Roth 401(k) contributions to the plan.

Why All of the Sudden Interest in Roth Accounts?

Higher income participants are now eligible to convert their traditional IRAs into Roth IRAs regardless of their income. Further, new legislation allows 401(k) plans to provide for a conversion of retirement plan funds into a Roth account without the money ever needing to leave the 401(k) plan. This means more of your participants may be hearing about Roth features and whether it would be advantageous for them to utilize such a feature. In order to allow for a Roth conversion, a 401(k) plan must allow participants to make Roth contributions to the 401(k) plan.