Post-tax Roth options are steadily increasing in 401(k) retirement saving, according to Vanguard’s How America Saves report released Monday.

According to the recordkeeper and asset manager’s deep dive into more than 1,500 qualified retirement plans and nearly 5 million participants, Roth was offered by 82% of plans at year-end 2023, and by 95% of plans with over 5,000 participants.

That’s up from 74% of plans offering the after-tax option in 2019. Participant use of Roth, meanwhile, hit 17%, up from 12% in 2019.

The use of Roth in 401(k) saving is a trend that is only set to increase as policymakers have made Roth use a priority in SECURE 2.0 Act legislation via a combination of mandates—by way of catch-up contributions for higher earners—and optional provisions such as employer matching in Roth accounts, says Jeff Clark, head of defined contribution research at Vanguard.

“There is a greater awareness [of Roth] for sure,” Clark says. “Particularly among younger and higher-income participants.”

The age group with the highest use of Roth (21%) was between 25 to 34, according to Vanguard’s data. Those 65 and up used it the least, at 9%.

Leveraging Roth in retirement savings is a focus for policymakers in part because the tax collection up front can help defer the costs of other programs, such as tax incentives for small business to offer defined contribution retirement plans.

Rising Tides

Overall, Vanguard struck a positive note of retirement saving progress from this year’s 114-page analysis. John James, managing director of Vanguard’s Institutional Investor Group, wrote in the report that “2023 was a year of progress.”

“Despite stubborn inflation, plan participation and participant saving rates reached all-time highs,” he wrote. “The adoption of automatic enrollment in defined contribution plans set positive records. And the percentage of plans offering an advice service was higher than ever.”

Clark reiterated the sentiment, calling out in particular a statistic that 57% of plans have a participation rate of over 90%.

“It shows the power of auto enrollment and worker retirement savings,” Clark says.

He noted that, overall, “plan designs have never been stronger,” and rattled off a list of new or matching highs for the report, including:

• 59% of plans offer auto enrollment;
• 74% of plans offer immediate eligibility for employee contributions;
• The average employer match is at 4.6%; and
• Total average savings with participant and employer contributions of 11.7%.

There were, however, signs of strain for some savers. In-service plan withdrawal activity increased “modestly” from 2022 to 2023, as did hardship withdrawals, with 3.6% of participants initiating the option as compared to 2.8% in 2022, according to Vanguard.

The main reason for hardship withdrawals, Clark noted, was to avoid a home foreclosure—showing savings are used as “somewhat of a safety net.”

Advice In Use

Another record was set by way of managed account offerings made available in plans: 43% of plans now offer the more personalized service as compared to 37% in 2019. Among plans of 5,000 or more participants, that figure jumped to 80% of plan offerings.

Participant use, however, has not matched those increases: 7% of participants are using managed accounts, a figure that has held steady since 2020. However, when participants are offered a managed account directly, 10% of them choose the option.

The use of professional investment services compared to 59% of participants in a single target-date or balanced fund. And among those participants using managed accounts, they tended to be higher-paid and with higher balances, according to the researchers.

Clark sees the growth in managed account offerings as a sign that “both plan sponsors and participant are seeing the value of personalized advice and guidance.”

He noted findings in the report that participants in managed accounts tend to have more dispersion of investments that cater to their specific situations and reduce investment risk. Those in managed accounts also tended to have more trading or exchange activity in their accounts.

“A lot of participants fall out of that one-size-fits-all scenario,” Clark says. “The managed account can help with risk aversion, retirement income needs and gives that personalized investment portfolio.”

Vanguard surveyed more than 1,500 qualified plans and nearly 5 million participants for its study from data as of December 31, 2023.