What Are The Benefits Of A Roth 401K?

Today, more business owners, executives, and other professionals are starting to recognize the advantages of the Roth 401k plan. It may be that your business or company could offer a Roth option that would let you contribute money after taxes that could end becoming tax-free in the long run. This type of plan offers an added layer of flexibility for you and those that work for you.

Investing in Roth 401k Has Benefits

Of course, you may be wondering what specific benefits could be available to you – should you choose to get a Roth 401k. For the moment, take a look at some key benefits. By understanding them, you may have sufficient information to determine if this kind of retirement account works best for you.

Tax-Free Growth

Since the contributions made to a Roth 401k are made using after-tax money, the assets may grow without being taxed. Thus, when you retire you will not be required to pay taxes on it. Of course, you will have needed to have had the account for more than five years and you must be at least 59 and a half or older when you start withdrawals. The tax-free status of the funds can provide a great way for professionals, executives, and business owners to save more money for retirement.

No Income Limits

This means that if you have a high-salaried position you can still obtain one of these plans. This is in contrast to the Roth IRA, which places specific limits. Any income barriers are removed.

Withdrawals Not Required

You won’t be required to withdrawal distributions at 70 and a half like you would with the traditional 401k plan.

Contribution Limits Higher Than The Roth IRA

The Roth IRA set a contribution limit of $5,000 ($6,000 for those 50 years old or older) each year. The Roth 401k has set that annual limit much higher. At this point, you can contribute up to $16,500 a year. (The amount for people 50 years old and older is $22,000 a year.) These higher limits can help you meet your retirement goals more effectively.

Rollover Options

For an individual who leaves a position or a business where he or she maintained a Roth 401k, it is possible to roll the funds over into a Roth IRA in order to maintain the tax-free growth status.

A Tax-Smart Option

There is still a major likelihood that taxes will be much higher for the highest-earning tax-payers. It is a consequence that will be forced by the federal government’s decision to spend more than a trillion dollars in the financial bailout. The costs to get this under control will obviously be thrust upon the taxpayer. It smart to put your retirement savings in an account that won’t require you to pay on tomorrow’s taxes. Instead, you pay today’s lower rates.

Should Businesses offer Roth 401k’s?

The question is, in the end, whether your business offers the Roth 401k option. If you’re the owner, you may want to offer this option. Those more apt to use it typically include the owners, executives, and professions that make up the highest-earning people in the country. They also need savings options that will ensure tax-free growth.

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