Taxpayers Prefer Back-Loaded (Roth) Plans, Study Finds

Taxpayers prefer back-loaded retirement plans to front-loaded plans, according to research from the Center for Retirement Research at Boston College. In front-loaded plans, contributions are immediately deductible and earnings aren’t taxed, examples include IRAs and 401(k)s. Back-loaded plans (i.e., Roth) don’t provide deduction or exclusion for contributions, but all contributions and earnings are tax-free.  

The study found people systematically incorporate non-economic factors into their retirement plan choices and have an “irrational” preference for back-loaded plans, even when it’s a bad financial choice for them.

According to the researchers, the study should help policymakers who want to use the tax system to encourage saving.