|
Investment Planning |
The Roth 401(k)
Roth 401(k) plans are now available if your employer offers them. High- and middle-income individuals will benefit, since there are no income caps on who can contribute to a Roth 401(k). Contributions must be made through an employer-sponsored plan; employers may amend their 401(k) plans to allow Roth 401(k) contributions, at their discretion.
Like money in a Roth IRA, funds put into a Roth 401(k) grow tax-free. All Roth contributions are made with after-tax dollars. If you have an annual cash surplus, a Roth 401(k) is a great way to save, since the earnings will never be taxed. Key benefits of both Roth 401(k) and Roth IRA accounts are that distributions are not mandatory during your lifetime, and distributions made after age 59 ˝ and in a few other circumstances are not taxable.
How much can you contribute to a Roth 401(k)? The same limits apply for traditional 401(k) and Roth 401(k) plan contributions: $15,000, plus an additional $5,000 if you are over age 50. Any Roth 401(k) contributions will count toward the regular 401(k) limit. Watch your company’s benefits literature to find out if you will have the chance to participate in the new Roth 401(k).
Tips Disclaimer
These tips contain information that may change over time as a result of new tax legislation. Although we make efforts to keep this information current, you should check with your tax advisor before taking action based upon any information contained in these tips.