Roth 401(k) Plans
A new retirement account was signed into law on August 17, 2006. It is a component of a “regular” 401(k) plan; however, the funding of a “Roth” 401(k) plan is with AFTER-TAX dollars. This is similar to the Roth IRA but with higher funding limits and no limit on earnings to contribute. Money contributed to a Roth 401(k) plan grows without tax and is distributed without tax. You have until April 15th of each year to make a contribution for the previous year. The funding limit for 2020 (and 2021) is $19,500, or $26,000 if over the age of 50.
Ask yourself the following question: Will you grow more wealth funding a Roth 401(k) in a non-deductible manner where the money grows then comes out income tax-free, or will you grow more wealth income-tax deferring money into a traditional 401(k) where the money withdrawn is fully income taxable at your current income tax bracket?
The answer is… it depends. The real-world answer about Roth plans is that many readers may in fact be better off using Roth Plans over traditional income tax-deferred plans.
Who should use a Roth 401(k)?
Anyone who will be retiring in the same or higher tax bracket.
Anyone who will be retiring in a tax bracket within 10% of their current tax bracket.
For example, if you are in the 40% tax bracket and will retire in the 30% tax bracket, using a Roth Plan is still a better financial tool than using a traditional tax-deferred retirement plan.
If you would like to download a four-page PDF summary showing you the real-world math and why Roth 401(k) Plans are better than traditional tax-deferred plans download our PDF summary.
Not only will we help you implement a plan, but we will look at all the various options to help you grow your wealth (like using a guaranteed 5%-6% guaranteed return (accumulation value) product that will provide for you a guaranteed lifetime income you can never outlive). To learn more about this product, please click here).
*Any guarantees mentioned are backed by the financial strength and claims-paying ability of the issuing insurance company and may be subject to caps, restrictions, fees, and surrender charges as described in the annuity contract