Since 2006, those who fund their retirement portfolios through their company have a new option: Roth 401k plans. These plans are a great way for higher-earners to contribute to their long-term savings plan as there are no salary limits. Contributions to a Roth 401k plan are made after taxes, and there is no future tax penalty upon withdrawal as long as some basic Roth 401k rules are followed.
Before you choose to participate in Roth 401k, you should know this:
- Contributions to a Roth 401k are made after taxes
- Those who have had their Roth 401k for more than five years and withdraw their money after they are age 59 1/2 will not be subject to any additional taxes
- There are noincome conditions for Roth 401k participants
- Like traditional 401ks, the maximum contributions that a participant can make are set by the Government, for 2008 the limit is $15,500
- The maximum that an employer can contribute to a 401k plan in 2008 is100% of your salary or $46,000
- If your employer offers a Roth 401k contribution match, the money they add will be in a traditional 401k, thus providing you with two 401k plans
- Loans against your Roth 401k plan are treated very much like a traditional 401k loan
- If by age 70 1/2 you have not rolled over your Roth 401k plan into a Roth IRA you will have to take a required minimum distribution
- Generally the rules to a Roth 401k plan are similar to traditional 401k plans in relation to 403(b) plans
- Roth 401k were originally going to expire in 2010, but 2006 legislation passed making it a permanent option
