The Opportunity For Contributing To A Roth 401k ... - Investing Guide

The Roth 401k, a type of retirement savings plan once scheduled to sunset out at the end of tax year 2010, was legislated by Congress in 2006 to become permanent. The opportunity to participate in this still fairly underused retirement savings opportunity (while also contributing to a traditional 401(k) account) is now being offered by larger employers, who will stimulate other companies to provide access to the program.

Adoption of these plans has been slow, according to employers, because the plans require additional payroll processing and a greater amount of record keeping by the company?s program administrator. Anyone whose employer offers this program is presently eligible to set up and contribute to one. These contributions by the employee are irrevocable. Once money is invested in this account, it cannot be transferred to the employee?s regular 401(k) account, if one exists. However, an employee may roll the account over to a Roth IRA if his or her employment is terminated.

The plan combines of some of the advantages of the original 401(k) elective deferral plan with advantages of a Roth IRA retirement account. A traditional 401(k) plan allows employees to contribute some of their pre-tax earnings (known as elective deferrals) to a retirement plan.

Employers may add matching funds to the employee?s account, where its growth is tax deferred until it is disbursed during retirement. The IRA, on the other hand, requires post-tax contributions but allows tax-free distributions from and growth to the account on the conditions that the money has been invested in the IRA for at least five years and is not disbursed until the owner is at least 59-1/2 years old.

Contributions to this program are not allowed if income exceeds a certain amount ($110,000 for one individual or $160,000 if married and filing jointly). Contributions that are allowed are a great deal more limited than those allowed for a 401(k).

Under the rules of the Roth 401k, employees are making contributions to it on a post-tax basis of elective deferrals. These are made either instead of, or in addition to, the employee?s deferrals to a traditional 401(k) plan. (They are also allowed to put away thousands of dollars more than they can with the Roth IRA.) The key difference between the two contributions is that the most recent version is funded with post-tax dollars and the traditional 401(k) with pre-tax dollars.

It is not a new opportunity to save so much as it is a savings opportunity with a different tax treatment. Employers can match contributions going in this new type 401k; they just have to be in a pre-tax account.

Younger employees who are paying taxes now in a lower bracket than they will when they are retirement age benefit the most from a Roth 401k. Without the income limitations placed on a standard Roth IRA, the Roth 401k is advantageous because of its tax-free distribution.

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Let?s face it! Retirement will be here before you know it. If you begin planning today, your Golden Years can be even better than you imagined. All it takes is the right information and purposeful action. Visit http://rothconversiononline.com to get the details you need to plan for a wonderful future.

This entry was posted by J. Morgan on August 21, 2011 at 10:57 pm under IRA 401k. Tagged IRA, retirement, retirement savings, retirement savings plan, Roth 401k. Both comments and pings are currently closed.

Source: http://www.tok2008.org/the-opportunity-for-contributing-to-a-roth-401k-is-here-to-stay/

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