New Laws Allowing Addition of Roth 401K

I did not have a Roth option added to my small business 401K when it was set up a couple of years ago. Can I add it now? Does adding this option give my employees any extra benefit?- Noreen Kugel is a seamstress from New Orleans, Louisiana.

Noreen, your question comes at a really great time!  You can definitely add a Roth option to your existing 401K plan and your employees will love it. Here is why:

The Small Business Jobs and Credit Act signed by President Obama in September 2010 lets employees who are already participating in a 401K plan to convert this plan to a Roth. Although the employee will have to recognize the income that is converted in this way (for tax purposes), it is still worthwhile considering that Roth funds grow tax free. Earlier, the only way your employee could have moved his traditional 401K funds to a Roth plan was to quit his job or retire and then move to a Roth IRA. With this new law, conversions have become easy and painless.

As employer, what you need to know is that you do incur some administrative costs and add a bit more to your accounting burden. But your employees will really appreciate the flexibility that the Roth addition gives them. You will find that the increased employee loyalty pays you back many times over. Use a DIY software package like to keep your plan management simple and cost effective so that the advantages you stand to gain from the Roth addition far outnumber the disadvantages.

About Elliot Earl, Director, Pension Trade Association
Director, Pension Trade Association Founded in 1982, the Pension Trade Association [California Domestic Nonprofit Corporation #C1629080] is dedicated to helping workers save for their retirement through expanded coverage of 401k -type defined contribution pension plans.

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