Skip to main content

You are here

Advertisement

Roths on the Rise

A new survey finds that Roth 401(k) usage is creeping up, particularly among Millennials. According to Wells Fargo, 12% of participants are contributing to a Roth 401(k), up from 8% four years ago.

Millennials — who are probably now paying income taxes at the lowest rate of their lives — are the most significant users of Roths, with 16% contributing to a Roth 401(k) versus 11% of Gen Xers and 7% of Boomers.

Diversification Data

Millennials are also the most diversified generation. According to the survey: 82% are meeting a minimum level of diversification (defined by Wells Fargo as a minimum of two equity funds and a fixed income fund and less than 20% in employer stock). That’s better than the 72% who met a minimum level of diversification four years ago. Gen Xers and Boomers have also seen strong gains in this category, with 78% and 75% respectively meeting the minimum level of diversification (up from 70% and 68% four years ago).

Overall, 76% of participants use a managed product (such as target-date funds, which are seeing specific gains from 47% to 62% of participants who have money in a TDF), up from 65% four years ago. By generation, managed account usage breaks down as follows:

• 83% of Millennials
• 75% of Gen Xers
• 70% of Boomers

Participation, Savings Rates

Participation in 401(k) plans among Millennials has reached 55%, up from 45% in 2011, and employees in the pay range of $20,000 to $40,000 in salary are participating at a rate of 59%, up from 47% four years ago.

Although participation rates are rising, the deferral rates are relatively flat in the four-year analysis, with 38% of participants saving a minimum of 10% of their salary (which may include an employer match) in their 401(k) plan, though that’s up from 34% four years ago. Twenty-eight percent of Millennials currently reach a total contribution of 10% of pay, compared with 35% of Gen Xers and 45% of Boomers.

Sixty-two percent of all active participants are taking full advantage of their employer match, including:

• 54% of Millennials
• 63% of Gen Xers
• 70% of Boomers

The number of eligible employees participating in Wells Fargo-administered plans rose 13% between 2011 and 2015. The firm, which administers 401(k) plans for 3.8 million eligible participants employed by U.S. companies, noted that the increase in participation correlates to an increase in plan sponsors opting for automatic enrollment of their participants, which now stands at 40% of Wells Fargo-administered plans, up from 30% in 2011.

Advertisement