The Roth 401K Option

Since being introduced a few years ago as an option available to 401k plans, the Roth 401k has been slow to catch on. In fact, it has not been widely adopted by plan sponsors.  But for those having the option available to them it can be another tool for financial success.

When will you consider using the Roth 401k?  Well, the primary reasons are the same as with its IRA cousin.

  • If you expect to be in a higher tax bracket when you retire.
  • You plan to leave some or all of your pension money to your heirs.
  • You are thinking of funding a bypass trust with IRA/pension money

If you have determined that a Roth is part of your financial strategy, there are advantages to the Roth 401k account over the Roth IRA.

  • Unlike the Roth IRA there is no income threshold barring you from contributing. This is a distinct advantage for people with higher incomes that may still wish to use a Roth. The Roth IRA has an income limit of $188,000 for married couples and $127,000 for singles in 2013.
  • The contribution amounts are higher with the Roth 401k. You can contribute $17,500 plus $5,500 if you are 50 years old, versus $5,500 plus $1,000.  In addition, if you are below the income threshold you can contribute to both the Roth 401k and the Roth IRA.  This can give you a more rapid accumulation of future tax free retirement funds.

As stated before, having the Roth 401k account available provides another option for accumulating retirement money, but you need to carefully consider the balance between tax deductable and non-tax deductable 401k contributions and how your overall retirement plans will be affected.  The best approach is to sit down with a competent financial advisor and map out the right strategy for you.


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Comment   |  6 years, 5 months ago from Marlton, NJ