Asked for a Roth 401k at work

**Snave** · 02-17-2008, 05:39 PM

I would find as many articles as possible on the benefits of a roth. I would also find out what the percent is of companies that are now offering it (probably can find articles on adoption rates on the internet) and take it all to her and cc your boss, and anyone else that will listen. At this point in time, you are just easier to brush off for her. If you make a valid point and others know about it, she will more than likely have to at least look at it. When you do send her the info, I would probably do something via e-mail and cc others like your boss. I might start out something like "I know I brought the possibility of our company adding a roth 401K to the current 401K options and you stated that it wasn't a good fit at the time for the company. I respect your knowledge on the matter, but would also like to provide a few articles that state the benefits of such as plan. While I can not speak for the rest of our employees, I know I would be really excited about this addition and can only speculate that others would be as well. Again, I have attached several articles stating the benefits and would love to hear your thoughts."

Again, I'd cc the heck out of anyone that would listen. If others know she brushed you off, she might not do it as quickly again.

**Thrif-t** · 02-18-2008, 05:25 AM

Thanks Snave I'll work on that. I didn't think it should be too much set up wise for them. We're not talking about having to add new investment picks. For me I only work part time so no health benefits (DH has them) but putting money ina Roth 401k is important to me. I've read quite a few articles about the likelyhood of taxes being much higher when I'm in my retirement years 20 years from now so a Roth 401k is where I"d like my money to go NOW.

And ya know I work at a law firm and unfortunetely there are very few financially minded people here. I'm not sure who I could copy that would even have a clue about at Roth 401k.haha

**illinigamer** · 02-19-2008, 10:33 AM

Originally posted by Thrif-t View Post

The HR Mgr said she didn't think it would be a good fit for our plan. What the heck does that mean?

You mentioned that you work at a law firm. Maybe due to the high average compensation, they do not expect that many would take advantage of the Roth option? Personally, I don't agree with it. I work for a software company where the the median salary is probably somewhere in the 28% bracket and we still had tons of people asking for the Roth option (which we recently got). However, this may be where she is coming from.

**jIM_Ohio** · 02-19-2008, 10:59 AM

I am just guessing, but my thinking is

a) the paperwork required is probably 2 seperate plans, means close to 2X the expense to set up
b) 401ks are not free to your employer. There are costs to set up and costs to maintain
c) there is a criteria called discrimination testing. If employer is small and only the most compensated employees contribute (or they contribute most of the money), the company will fail the discriminiation testing, costing the people which contributed more money in taxes. If the 401k now barely passes the test, and a second plan (Roth) is used, it's possible both plans fail the discrimination test and would cause fines and higher taxes for the participants.

I think a regular 401k is a good deal, even if you are in 28% or 25% bracket.

My gross income is in 25% bracket- square in middle (meaning 50% of bracket is above me and 50% is below). Yet I found myself at tax time (with deductions) in 15% bracket. 25k of deductions makes a HUGE difference. 15% vs 25% tax rate.

My advice to anyone is delay paying taxes on as much as you can. You can convert to a Roth when retired and in 15% brackets for most of us (I think 75% of country will retire in 15% tax bracket or lower). Even if you think tax rates are going up in the future, they won't go up that much for 75% of the tax paying public.

If you are paying taxes in 25% bracket expecting to be in 28% tax bracket when you retire, that is saying "I spend 100k now, and will spend 180k in retirement".

Or you could be in situation where you spend 100k now, defer taxes on around 20k of that, and probably convert that 20k to a Roth at 15% tax bracket when you retire.

My plan is three fold

1) defer taxes on close to 10% of income now using a 401k. Last year this reduced us from 25% bracket to 15% bracket.

2) contribute to a Roth IRA up to yearly maxes

3) convert the 401k to a Roth from age 59.5 to age 70.5 in 15% tax bracket.

I know we can do 3) because if we are down to one income, we are clearly in 15% territory, and I will cap off top of 15% bracket with roth conversions.

**Thrif-t** · 02-20-2008, 12:35 PM

I guess if we don't get a Roth 401k you're #3 will have to be my plan, of course if I'm still working at 59.5 which I think I will then I won't be able to roll my 401k into an IRA to be able to convert it to a Roth. Biggest mistake I ever made was rolling my 401k from my last job into the 401k at this place. If only I had known and understood then about rolling it over into an IRA.
I just feel taxes will rise and it would be more beneficial to have more tax free retirement monies. I mean only putting up to the max (which really isn't very hight compared to the max allowed in 401's) in a Roth I don't feel will be much for us(compared to the money in our 401k's). Thanks for your thoughts.

**jIM_Ohio** · 02-20-2008, 12:41 PM

Originally posted by Thrif-t View Post

I guess if we don't get a Roth 401k you're #3 will have to be my plan, of course if I'm still working at 59.5 which I think I will then I won't be able to roll my 401k into an IRA to be able to convert it to a Roth. Biggest mistake I ever made was rolling my 401k from my last job into the 401k at this place. If only I had known and understood then about rolling it over into an IRA.
I just feel taxes will rise and it would be more beneficial to have more tax free retirement monies. I mean only putting up to the max (which really isn't very hight compared to the max allowed in 401's) in a Roth I don't feel will be much for us(compared to the money in our 401k's). Thanks for your thoughts.

That rollover money is always yours. The 401k **should be** tracking it seperately.

I ran into a situation where I had a 401k combined (rolled over), and was able to take out the rollover 3 years later (2007) and put it in an IRA

1997- worked for company A with a 401k
2001- bought out by company B, 401k's could have been rolled over into IRA, I rolled into new 401k.
2002- sold off into company C- 401ks could NOT be rolled over into an IRA.
2007 bought out by company D- I found out in November that the rollover money from A+B could always be rolled over at any time. I did so immediately (because my current 401k is not the best, IMO).

In addition, the money in your 401k will determine your future tax bracket. What federal tax bracket are you in right now? 15%? 25%? 28%?

If in 25%, wouldn't it make sense to delay paying taxes now (at 25%) then pay taxes at 15% during retirement? Most of my retirement plan hinges on having money invested where I can drop my tax bracket without dropping income.

Capital gains do NOT increase tax bracket. So if you withdraw 100k in capital gains, it is taxed at 5%, if you withdraw 100k from a 401k, you will pay 25% tax bracket. So the plan is to keep 401k withdraws low by using other vehicles to slowly convert the 401k over to a Roth at 15% tax rate.

**Thrif-t** · 02-20-2008, 01:36 PM

Well since I posted on the other thread that my effective tax rate was 3.61% I'm guessing I'm in the 15% bracket but honestly I don't know how to figure that out

After I figured out how I could've done the rollover IRA I asked this current employer about getting my rollover money back. They said nope...only way I could get it is if I quit or was terminated. Once its in the plan I can't get it out till retirement or one of the two scenerio's stated.

I guess I just feel like we will be moving into a higher tax bracket as we age and the kids drop off...hence wanting to pay the taxes now instead of waiting till retirement.

**jIM_Ohio** · 02-20-2008, 04:44 PM

Originally posted by Thrif-t View Post

Well since I posted on the other thread that my effective tax rate was 3.61% I'm guessing I'm in the 15% bracket but honestly I don't know how to figure that out

After I figured out how I could've done the rollover IRA I asked this current employer about getting my rollover money back. They said nope...only way I could get it is if I quit or was terminated. Once its in the plan I can't get it out till retirement or one of the two scenerio's stated.

I guess I just feel like we will be moving into a higher tax bracket as we age and the kids drop off...hence wanting to pay the taxes now instead of waiting till retirement.

Don't be in such a hurry to pay all your taxes now. Deferring taxes is an age old accounting trick ("worry about it later").

What if you pay taxes now, and the government add Roths into taxable income later in life? Even if the Roth itself is not taxed, it might cause other income to get taxed.

Tax laws change often. Delay paying taxes for as long as possible on as much money as possible.

That being said, I contribute 11% of income (7k+) to 401k and 5k per year to Roth. So I do a little of both, but defer taxes on more (7k) than I pay taxes on (5k) for retirement purposes.

Asked for a Roth 401k at work