Roth 401k - Coming January 2006

[Roth401k]

Retirement done right.  Or is it?  You can pay now and save later with a Roth 401(k).  The new Roth 401(k) retirement plan is basically a traditional 401(k) that is not bound by income thresholds, and is supplemented with the Roth IRA benefit of tax-free growth and withdrawals. 

Roth 401(k) plans become effective January 1, 2006, and will allow you to contribute after-tax earnings into an employer 401(k).  The contributions you make will grow tax-free, forever.  When you make withdrawals from a Roth 401(k), you will owe no tax.  None.  Is a Roth 401(k) right for your retirement?  You make the choice. 

Discuss the Roth 401k here:
Roth 401k Forum

 

[Martha]

Do you know if it is an either or proposition? Or can an employer have a plan which allows people to make a choice to have a traditional 401(k) contribution or a Roth contribution?

 

[wildcat]

I think it could be a good option for people with crappy 401k investment options. I might be interested in throwing in enough money to get the match for 401k and then (other part I like) putting the rest in a fund or funds of my choice via Roth 401k via Vanguard. That seems like the ideal situation. Keep fund expenses low, get a small break on taxes + get the company match. Any ideas?

 

[wildcat]

Part of the 2001 tax bill that expires in 2010. So if I understand correctly it could be a limited time offer. Start the plan and if it isn't renewed then it will cease to exist past 2010. The idea of putting the Roth 401k's destiny into our politicians' hands

 

[Roth401k]

For those people interested, here's some highlights to a Roth 401k coming in 2006:

•Employees will be able to contribute after-tax dollars to the Roth 401(k). The money will be held in a separate account from contributions to your regular 401(k). You decide what percentage of your retirement plan contributions go to either account.

•You'll be able to make the maximum contribution allowable under 401(k) rules. The 2006 401(k) contribution limits allow employees less than age 50 to sock away up to $15,000 -- $20,000 for employees age 50 or older.

•For those who want to save after-tax money, this is a much quicker route than saving in the Roth IRA, which has contribution limits of $4,000 for those less than age 50 and $5,000 for those age 50 and above in 2006. If you have a Roth IRA, or plan to open one, you can still contribute the maximum allowable to that account in addition to your Roth 401(k) contributions.

•If your company provides a matching contribution, it will be pretax money and will go only into the regular 401(k) account.

•The Roth 401(k) is open to all employees who qualify for the regular 401(k). This is a boon to higher-paid employees who may be excluded from having a Roth IRA account because of its income limitations.

•Contributions are irrevocable. Once the money goes into the account, it falls under all of the IRS rules and penalties for 401(k) accounts; you can't change your mind and have it switched over to your regular 401(k).

• Money can be withdrawn tax- and penalty-free as long as you're at least age 59½ and have held the account for at least five years.

• The Roth 401(k) has the same distribution requirements as the 401(k). You'll need to begin taking minimum distributions by the time you reach age 70½. This contrasts with the Roth IRA, which has no distribution requirements.

• You can roll over your Roth 401(k) contributions to a Roth IRA when you retire or if your employment is terminated.

 

[Roth401k]

Please let me know if I can help anyone else out with Roth 401k's.  Some backround on me:  I am an airline pilot who is very concerned with the current situation with today's pensions.   That's why I'm very interested in the Roth 401k and also why I made a website to discuss it and for people to ask questions and get answers.  I have read virtually every article and document published on the Roth 401k as well as listened to a few seminars on the subject.  Please let me know if I can help out with anyone's questions. 

If you are interested in learning more about the Roth 401k coming January 1, 2006 I have been collecting articles on the subject for the past year and have most of them posted on the Roth 401k Forum website. Thanks.

Roth 401k Forum - Discuss the Roth 401k

 

[Martha]

Thanks for the information. Good to know that you can choose to make contributions into both, provided you stay within the cap.

 

[unclemick]

Single, age 62, 85% trad IRA, 11k pension, 15% taxable stocks, 15% bracket or lower - the conversion calc I've seen so far drive me nuts.

Let the trad compound tax free to 70 1/2 and take the higher tax bracket or take the 15% hit now through mini conversions and try to beat the other way AND bet ROTH will still not count against you when figuring how much SS counts when figuring taxable income.

P.S. - paying tax from the stock kitty, my living expenses part - 12 - 15k/yr plus her (da SO) up to 25k is more than enough to sruggle along.

 

[wildcat]

[quotePart of the 2001 tax bill that expires in 2010. So if I understand correctly it could be a limited time offer. Start the plan and if it isn't renewed then it will cease to exist past 2010]
Roth401k this doesn't seem to bother you

 

[Roth401k]

Yes, it bothers me. As with most provisions of the tax act of 2001, the plans will expire after 2010 unless Congress extends them.

This expiration date makes it even more important to take advantage of these plans as soon as they are available if you decide they make sense in your situation, in my opinion. I certainly hope congress decides to extend the Roth 401k. If they do not then I will have 5 years worth of after-tax money in my Roth 401k which will most likely get rolled into a Roth IRA. Even this option would be a benefit.

 

[cute fuzzy bunny]

Everything expires sooner or later.

Including us!

 

[Mountain_Mike]

Does anyone know if there is something similar for those of us who are in 403(b) plans?

 

[wildcat]

Mountain Mike -

I believe when I did some reading I recall it will include the 403bs as well as 401ks