A new Workplace Retirement plan has entered the fray - Is it right for you?
IRA vs 401(k)? All Roth
How is a Roth 401(k) similar to a Roth IRA?
- All of your contributions are with POST-tax dollars
- You are not taxed on any of your withdraws when you retire.
- You can withdraw your original contributions at no penalty (If your Company Allows it)
- Unlike Roth IRA's, owners of Roth 401(k) accounts (designated Roth accounts) must begin distributions upon reaching age 70 and a half, similar to required minimum distributions for IRA and other retirement plans. (Pub 4530)
- Employees are able to roll their Roth 401(k) contributions over to a Roth IRA account upon termination of employment.
Roth 401(k) Professional Articles
Traditional 401(k) vs. a Roth - How do they compare?
Both of these choices are 401(k) plans - This is how they match up
- Both types of plan allow contribution up to the annual limit.(currently up to $15,500 per tax year for those under age 50 and $20,500 for those over)
- The Traditional 401(k) uses pre-tax dollars while the Roth uses after-tax dollars.
- Profit sharing and matching plans will match the actual dollar amount that goes in, regardless of tax status.
- All matching and profit sharing funds are considered to be contributed under the Traditional style plan. (Example: If I contribute to nothing but the Roth option, my contributions will grow and be withdrawn tax-free. However, any and all employer contributed funds will be taxed when withdrawn at your current tax bracket.
- Roth 401(k) contributions are irrevocable, such that once money is invested into a Roth 401(k) account; it can not be moved to a regular 401(k) account.
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Good Rules of Thumb
Hard and Fast decision making rules regarding the Roth
Before we get into more detailed analysis and calculators, here are some hard and fast rules of thumb to go by when deciding to use a Roth.
Current Federal Tax Rate
If your current Federal Tax Rate is lower than you anticipate it being in retirement, The Roth is better. <i>If you don't make much now or you are planning on retiring with more income than you have now</i>0 points
Future Tax Structure Risk
If you think <b> Federal Income Tax Rates </b> are going to rise significantly as a whole by the time you retire then the Roth may be good for you. <i> Conversely, If you think they will fall, the Traditional may be better for you</i>0 points
Tax Diversification
If you already have other retirement assets and those are being taxed every year or will be taxed at retirement, it may be a good idea to mix up the tax consequences with a Roth. This is called <b> tax diversification</b>0 points
Roth 401(k) Reviews
The latest breaking Reviews about Roth 401(k)s
- Workers Seek Roth IRA Option
- Employers and legislators are considering options that would enable workers to transfer assets in 401(k) plans into Roth IRAs or Roth 401(k)s before what ...
- Now's a good time to review retirement goals
- ... is whether to save with pretax dollars, subject to taxation upon withdrawal, or with after-tax dollars in a Roth 401(k) for tax-free withdrawals. ...
- Year-End Choice: Go Solo on Your 401(k)?
- Or you can designate the account as a Roth 401(k). You would get no deduction on contributions but withdrawals would be tax-free. ...
- 2009 year-end tax planning tips
- Contributions you make to a Roth IRA or a Roth 401(k) aren't deductible, but qualified Roth distributions are completely free from federal income tax making ...
My Experience with the Roth 401(k)
This is what I have learned in my Hands on experience with the Roth 401(k)
on January 1, 2006 companies were able to begin offering a Roth option to the standard Defined Contribution 401(k) plans that are becoming so common in the workplace. This option works very similar to the Roth IRA where your contributions are taxed and your eventual withdraws are tax free. This offers a huge opportunity to sack away more money with no future tax liability then ever because the limits are 401(k) contribution limits and not IRA contribution limits (IRA limits are currently $4,000/ yr while 401(k) limits are somewhere in the neighborhood of $15,000 for 2006)
The company I work for didn't know anything about Roth 401(k)s until late last year when I brought it up to the HR manager (here I went, causing trouble again). After a little back and forth, the company implemented the plan for this year. As soon as I became eligible on July 1, I eagerly enrolled.
The good
* You don't notice the extra couple bucks that are coming out of your paycheck....you really dont.
* The math works out so you are actually contributing MORE money because you never have to pay taxes on that money again....ever.
* I am still able to practice "tax diversification" more on how in a second.
* The program doesn't cost the employer any more money in terms of matching funds (I don't know about administration costs but I think our provider is a flat fee/ % of assets kind of thing)
Read More.....
Roth 401(k) Resources
Here's a list from around the web of Roth Resources
If you have a good Roth 401(k) resource that you don't find here... don't be shy! submit away, Reviews and blogs are also welcome.
Introduction to Roth 401k from Roth 401k
Roth 401k is a retirement savings plan and it is one of the newest options for employee retirement plan benefits. This type of retirement...1 point
My Experience with the Roth 401(k) Program at The Grumpstump
My experience with the Roth 401(k) over at The Grumpstump Check it out for other investment goodies as well.0 points
MorningStar and all types of Roth Plans
Very interesting article from Morningstar all about Roth plans.0 points
Roth 401(k) - Wikipedia, the free encyclopedia
Wikipedia- Always a good resource0 points
The Roth 401(k) Estimator (Retirement: Personal Finance) | SmartMoney.com
Should you sign up for this great new employer-sponsored retirement plan? Crunch your numbers in our worksheet to find out.0 points
How a Roth IRA Conversion Works
Five Cent Nickel Explores how a Roth IRA Conversion Works0 points
Tell us about your Experience
Do you like the Roth? Have questions about it? Let us know!
If you have a Roth 401(k), feel free to drop us a line and let us know how it's going. If not, tell us why! If you have any questions, throw em on out there and I'll do my best to help you out.
by Loyalis
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