Keywords
Roth 401(k), employee inertia, tax diversification
Abstract
Using administrative data from twelve companies that added a Roth 401(k) option between 2006 and 2010, we describe the characteristics of Roth contributions. Approximately one year after the Roth is introduced, 9% of 401(k) participants have positive Roth balances. Roth participation is more than twice as high among 401(k) participants who were hired after the Roth introduction than among 401(k) participants who were hired before the Roth introduction. In essence, once an employee joins a 401(k) she becomes passive/inattentive, thereby reducing the likelihood of reacting to the introduction of a new Roth option. Conditional on contributing to the Roth, 66% of employee contributions go to the Roth, and half of employees contribute to both the Roth and another 401(k) account, consistent with a tax diversification motive. Roth usage is decreasing in age, less likely among women, and only weakly correlated with salary and tenure once we control for other employee characteristics.
Original Publication Citation
“Who Uses the Roth 401(k), and How Do They Use It?” 2014. In David A. Wise, editor, Discoveries in the Economics of Aging, University of Chicago Press, pp. 411-440 (with John Beshears, James J. Choi and David Laibson). http://www.nber.org/chapters/c12979.pdf
BYU ScholarsArchive Citation
Beshears, John; Choi, James J.; Laibson, David; and Madrian, Brigitte C., "Who Uses the Roth 401(k), and How Do They Use It?" (2014). Faculty Publications. 9029.
https://scholarsarchive.byu.edu/facpub/9029
Document Type
Peer-Reviewed Article
Publication Date
2014
Publisher
University of Chicago Press
Language
English
College
Marriott School of Business
Department
Finance
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