Roth 401k Plan

The Roth 401 (k) account is one of the major parts of the 401(k) plans. It ranks among the well known retirement plans in the US. The plan was established by the United States Congress and is covered under the Internal Revenue Code. The most striking aspect of the Roth 401 (k) plan is that it is mixture of the various characteristics of the traditional 401(k) and Roth IRA plans. As such, you can get two fold benefits and make yourself more financially stable by being covered under the plan.

Recent surveys made on retirees and the aged have showed that a good number of retirees and employees are opting for the Roth 401k account to enjoy better benefits. By being covered under the account, you can opt for contributing your funds on a post tax elective deferral basis. In most cases, combined elective deferrals that an employee can make can exceed $16,500 for a tax year if he or she is under the age of 50. If one is 50 years of age or more, he or she can contribute an additional amount of $5,500 to the Roth 401(k) account.

By being covered under the Roth 401 (K) plan, you are allowed to make matching contributions to the particular Roth accounts. However, you need to make the matching funds on a pre-tax basis. This is one of the major differences between Roth 401(k) account and traditional accounts. In case of the Roth accounts, they are funded with the after tax dollars while in case of the traditional 401k accounts; they are funded with pre tax dollars. In case of the after tax dollars, the taxes for the funds are paid in the current year itself. The pre tax dollars do not have federal taxable incomes of the current year.

If you already have a Roth IRA account, you should go for the Roth 401(k) p0lan as you will be greatly benefited. It provides you with good increase on your funds and makes you financially secure in the long run. You can also enjoy tax free distribution and your income does not affect the distribution. Compared to the normal Roth 401(k) where $5,000 is the upper limit, the Roth 401 (k) contributions can amount to $16,500. However, for the contributions, you should not have other elective deferrals during the current year.

Apart from these, there are some other conditions and terms that are applicable in case of the Roth 401(k) account. They are:-

• The money that you put into the Roth 401(k) contributions cannot be changed into the regular 401(k) account.


• After you have left the job, you can change the Roth 401(k) contributions to a Roth IRA account.


• It is up to the company to decide whether they will provide Roth 401(k) account apart from the traditional 401(k) plan.

The Roth 401(k) plan can be available after the date of December 31, 2010 as per the Pension Protection Act of 2006. If you are covered under the plan, you can start the distributions after attaining the age of 70 and half.