Posted on October 07, 2005 at 17:10:35:
Yet another retirement savings option, the Roth 401(k) has some real pluses for workers in almost every tax bracket. Companies can offer these plans starting in January, 2006.
As in a regular Roth IRA, contributions are not tax-deductible, but withdrawals are tax-free if taken out after five years and after age 59 ½. Young worker probably wouldn’t save much on the deduction and have more time to compound earnings; older, richer ones will appreciate the tax-free aspect. And contribution limits are higher than for an ordinary Roth, as high as for 401(k): up to $15,000, plus an extra $5,000 for those born before 1957. And there’s no income limitation to this Roth.
Employer matches are not tax-favored; they go into a special account and are taxed as income when paid out. And yes, a Roth 401(k) is subject to minimum payout rules at 70 ½, but might perhaps be rolled over into an ordinary Roth.