Roth 401k Case Study

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ROTH 401k plan: Retirement Rules & Guidelines Also known as Roth 401k- Roth Introduction to the ROTH 401k plan. A Roth 401k plan is a government initiated company sponsored individual savings plan. Contributions are made on a non-deductible basis--The Roth 401k plan has tax free qualified distributions--The long-term benefits of owning a Roth 401k plan are superior to a traditional 401k, but the traditional 401k is better in the tax deductible contribution phase. Retirement News Center "Wealth Management" News and Services "Retirement Plan Guide" and News "401k" News "Traditional IRA" News and Article "Roth 401K" News and Article "Simple IRA" News and Article "SEP IRA" News and Article "Solo 401k" News and Article…show more content…
While any employer can add a Roth 401k option there is no obligation by your company to do so. Most employees welcome the Roth 401k additional option, but most companies have not elected to offer this benefit, so it is not widely available. Should I invest in a Roth 401k plan? Key factors for participants to consider: 1. The tax rate today versus your estimated future tax rate. 2. The need for income at retirement 3. The desire to maximize retirement savings 4. A rollover to a Roth IRA makes for a strong estate and retirement planning tool. How do I participate in a Roth 401k? 1. The Roth 401k works the same as traditional 401k accounts, except now your employer will provide a form on which you can designate some or all of your 401k contributions to go into a Roth 401k account. 2. If you change from a 401k into a Roth 401k plan the taxes will go up even if your income stays constant. You will trade from a tax deductible 401k income into non deductible Roth 401k contribution. The Roth 401k is designed for those who think in 5 years or more their income or marginal tax rate might be significantly higher. Contribution Limits in a Roth…show more content…
1. 70 1/2 age mandatory distribution limitation goes away. 2. 1st time home buyers (under $10,000) become available. 3. More access to your funds. You don't have to be superseded by the company plan. Disadvantages for a Roth 401k rollover into a Roth IRA. You have an income limit with new contributions. (The income limit only applies to new contributions in the Roth IRA). You pick up the ordering rules. (This is where accounting and bookkeeping could become very important). Business Involvement in a Roth 401k. Among the major concerns for employers are the costs associated with managing the plan, and educating their workforce about this new investment option. A secondary concern is what percentage of employees would want the additional option. What Will a Roth 401k Cost. An employer plan sponsor should expect to incur costs associated with additional service for some or all of the following. Employer Feasibility

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