Adoption of the Roth feature in DC plans has grown steadily since its introduction, yet participant adoption remains low. For instance, a recent research report by Vanguard notes that only 9% of their participants are in plans offering Roth in-plan conversions.
The benefit of the new Roth in-plan conversion feature is that it provides another opportunity for tax diversification within DC plans. The Roth conversion feature differs from Roth elective deferrals in that participants may convert larger amounts at once, thus facing a larger lump-sum tax bill.
The Vanguard research report predicts that the Roth feature will appeal to plans with high levels of savings and well-diversified plan assets. The conversion will require a complex tax analysis, as well as the ability to pay the higher tax bill. For these reasons, Vanguard anticipates increased adoption of the Roth feature over time, but at a slow rate.
