Just how does a Roth 401k plan work? It’s pretty simple really:
For lower income workers the tax relief from pre-tax contributions is minimal. Considering those assets will grow over your working lifetime-and the inflated amount will be withdrawn in retirement-it’s best to forego the current tax relief.
For workers in higher tax brackets (think 25%+) the pre-tax 401k option is likely a great bet! That being said, for the best long-term tax and investment benefits possible, some portion of your 401k savings should be allocated to the Roth 401k plan.
Allowing your participants the choice between pre-tax contributions AND after-tax Roth 401k contributions gives them ultimate flexibility to maximize their retirement as it best suits their unique situation.