Working Paper: NBER ID: w19193
Authors: John Beshears; James J. Choi; David Laibson; Brigitte C. Madrian
Abstract: Using administrative data from twelve companies that added a Roth 401(k) option between 2006 and 2010, we describe the characteristics of Roth contributions. Approximately one year after the Roth is introduced, 9% of 401(k) participants have positive Roth balances. Roth participation is more than twice as high among 401(k) participants who were hired after the Roth introduction than among 401(k) participants who were hired before the Roth introduction. In essence, once an employee joins a 401(k) she becomes passive/inattentive, thereby reducing the likelihood of reacting to the introduction of a new Roth option. Conditional on contributing to the Roth, 66% of employee contributions go to the Roth, and half of employees contribute to both the Roth and another 401(k) account, consistent with a tax diversification motive. Roth usage is decreasing in age, less likely among women, and only weakly correlated with salary and tenure once we control for other employee characteristics.
Keywords: Roth 401(k); retirement savings; tax diversification; employee behavior
JEL Codes: D14; D91; H31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Roth participation rate increase (J26) | awareness increase (I24) |
| Roth option introduction (Y20) | Roth participation rate increase (J26) |
| Demographic characteristics (J21) | Roth usage (H00) |
| Age (J14) | Roth usage decrease (D15) |
| Gender (J16) | Roth usage decrease (D15) |
| Salary (J31) | Roth usage decrease (D15) |
| Tenure (M51) | Roth usage influence (H00) |
| Hiring timing (M51) | Roth account usage (D14) |