Retirement Planning: Roth 401k

Even though it has been available for a couple of years, the Roth 401k still isn't something that a lot of people know about. And it is too bad. The Roth 401k is a great retirement account that combines the best options that you see in a Roth IRA with the convenience of a 401k.

Tax benefits of a Roth 401k

A Roth 401k has the same tax benefits of a Roth IRA. This means that your earnings in the retirement account are not taxed. Of course, this means that your Roth 401k contributions are taken out after you've paid taxes (rather than before). But for many, the fact that there are no taxes on the growth of the account, and the fact that the earnings aren't taxed when they are withdrawn from the account, outweigh this fact. In a traditional 401k, earnings are only tax-deferred. You have to pay taxes on them eventually.

Conveniences of a Roth 401k

With the Roth IRA, you have much lower contribution limits. You can only put in $4,000 a year. Additionally, there are income restrictions. Once you make a certain amount, you are no longer eligible to contribute to a Roth IRA. With the Roth 401k, these inconveniences are eliminated. You can take advantage of the 401k contribution limits ($15,000 a year) and you are not subject to an income restriction.

This is a helpful planning tool for many who want to take advantage of a great retirement savings option.

Getting a Roth 401k

Unfortunately, the Roth 401k is not as widespread as it could be. Many employers do not offer this retirement account option yet. Can you imagine if you could choose a Roth 401k as part of your company match retirement savings plan? If you are interested in seeing the Roth 401k offered at your company, you can talk to your human resources department. They can direct you as to how to go about getting this great plan.

It is also possible to talk to a financial planner. Consider consulting with a planner who specializes in retirement to find out what your Roth 401k options are. This may help you find a retirement savings plan that works for you.

Disclaimer: I am not an investment professional. This should not be construed as investment advice. All investment carries the risk of loss. Before investing, do your own research and/or consult with an investment professional.