An Analysis of the Roth 401(k)

This report describes the Roth 401(k) and discusses its potential effects. We find that the Roth 401(k) option will add complexity for employees and employers with little collateral social gain. The Roth 401(k) is unlikely to induce significant new private saving; almost all of the benefits are likely to accrue to high-income and wealthy taxpayers who are able to shift existing taxable assets into tax-favored savings plans. Moreover, the Roth 401(k) will increase the amount of resources that taxpayers can shelter and thus will likely have a negative effect on long-term federal budget revenue.