PLANADVISER - November/December 2018 - 44
investment-oriented
The Case for Roths
I
n the early 1960s, Walter Mischel,
a Stanford University psychology
professor, devised what became
known as " the marshmallow test "
to study the influences of choice and
self-control in young children: A child
is given the option to eat one marshmallow
right away, or enjoy the reward
of two marshmallows if he can wait a
few minutes-sitting alone in a room
with both treats.
Participants in 401(k) plans face
their own high-stakes version of the
marshmallow test: enrolling in a
conventional 401(k) with an immediate
reward-pretax contributions
with little apparent effect on their
current take-home pay-or electing a
Roth 401(k) where contributions are
taxed and paychecks are lower, but
receiving delayed gratification through
reduced taxes and greater flexibility in
cash flow during retirement.
The benefits to be had from Roth
plans can be significant, but, despite
their widespread availability, uptake by
participants has been relatively slow.
Roth plans are undeniably complex,
and the shortfall may be due to participants'
confusion. Or it may be just the
allure of enjoying one marshmallow
now. " Unfortunately, most Americans
think more about today than the
future, and the higher paycheck from
a pretax 401(k) seems more comfortable, "
says Delvin Joyce, a financial
planner with Prudential Financial
in
Charlotte, North Carolina. Therefore,
consultants and advisers have been
trying to replace education stressing
Roth's technical aspects with simpler,
more resonant explanations tied to
analogies and potential outcomes.
While they may lack the appeal
of an immediate tax deferral, Roth
401(k) plans can confer multiple and
substantial benefits. " In a simple case,
assuming that tax rates today and at
retirement will be the same, a participant
gets to the same account balance
These 'delayed gratification' plans offer benefits worth waiting for
44 | planadviser.com November-December 2018
Art by Hayden Maynard
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PLANADVISER - November/December 2018
Table of Contents for the Digital Edition of PLANADVISER - November/December 2018
Weathering Audits
Protection for Your Practice
The Case for Roths
SEC on Rollovers
ERISA Section 409(b)
403(b) Litigation Update
PLANADVISER - November/December 2018 - C1
PLANADVISER - November/December 2018 - FC1
PLANADVISER - November/December 2018 - FC2
PLANADVISER - November/December 2018 - C2
PLANADVISER - November/December 2018 - 1
PLANADVISER - November/December 2018 - 2
PLANADVISER - November/December 2018 - 3
PLANADVISER - November/December 2018 - 4
PLANADVISER - November/December 2018 - 5
PLANADVISER - November/December 2018 - 6
PLANADVISER - November/December 2018 - 7
PLANADVISER - November/December 2018 - 8
PLANADVISER - November/December 2018 - 9
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PLANADVISER - November/December 2018 - 11
PLANADVISER - November/December 2018 - 12
PLANADVISER - November/December 2018 - 13
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PLANADVISER - November/December 2018 - 20
PLANADVISER - November/December 2018 - 21
PLANADVISER - November/December 2018 - 22
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PLANADVISER - November/December 2018 - 24
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PLANADVISER - November/December 2018 - 26
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PLANADVISER - November/December 2018 - 33
PLANADVISER - November/December 2018 - 34
PLANADVISER - November/December 2018 - 35
PLANADVISER - November/December 2018 - 36
PLANADVISER - November/December 2018 - 37
PLANADVISER - November/December 2018 - Weathering Audits
PLANADVISER - November/December 2018 - 39
PLANADVISER - November/December 2018 - 40
PLANADVISER - November/December 2018 - 41
PLANADVISER - November/December 2018 - Protection for Your Practice
PLANADVISER - November/December 2018 - 43
PLANADVISER - November/December 2018 - The Case for Roths
PLANADVISER - November/December 2018 - 45
PLANADVISER - November/December 2018 - SEC on Rollovers
PLANADVISER - November/December 2018 - ERISA Section 409(b)
PLANADVISER - November/December 2018 - 403(b) Litigation Update
PLANADVISER - November/December 2018 - C3
PLANADVISER - November/December 2018 - C4
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