The Basics of a Roth 401(k)
Post Tax In, Tax Free Out
The Roth 401(k) is different from the traditional 401(k) in that your contributions are after tax, but your investments grow tax free, and all distributions after the age of 59-1/2 are tax free, as well. While there is no immediate benefit from a tax savings perspective, having a portion of your retirement savings available tax free during retirement can provide a lot of flexibility.
Is It a Good Fit for You?
A Roth can be highly beneficial, but the decision to utilize one is rarely as simple as either a Roth or a Traditional 401(k). One is not necessarily better than the other. A strategy using a combination of both types is often a reasonable and prudent strategy for many people. We will work with you to determine a plan of action that makes sense year by year as your personal and/or family situation changes.
Creating a Tax Free Income Bucket
Just imagine that it’s time for you to retire, and you have a few different ‘buckets’ of retirement assets you can draw from…some taxable, others tax-free, such as your Roth 401(k). This would provide you a lot of flexibility in your retirement income planning. We can help you better understand the practical application of such a strategy so you are well positioned when you are ready to retire. To learn more about our ‘Bucket’ strategy, click on the button below.
Diversifying Your Tax Risk
No one has a crystal ball (a working one anyway) that tells us where taxes will be upon retirement. Some feel they will be higher, others say they will be the same or lower. No one knows. Therefore, it is important to make the best decision based on what we know today as you create a financial plan. Our tools can help you determine what your plan should be.
Roth 401(k) Details
- You may have both a Traditional and a Roth 401(k) on the Amway plan.
- The Roth 401(k) contributions are automatic payroll deductions.
- The Amway match includes your Roth 401(k) contributions, but the match is deposited into your Traditional 401(k).
- The investment choices for your Roth 401(k) are the same as those in the Traditional 401(k), and both accounts will be accessible from your Fidelity web portal.
- A Roth 401(k) can be converted to a Roth IRA in the future. The Roth IRA has distribution advantages that the 401(k) doesn’t have, providing even greater retirement income flexibility.
- Contributions toward a Roth 401(k) are included in the annual limit of $16,500 for those under 50, and $22,000 for those 50 and older.
- No conversions to a Roth 401(k) are permitted.
- YES, BeManaged will also manage your Roth 401(k) along with your traditional 401(k)
- Want even more details? Click on the button below for a side-by-side comparison of the Roth and Traditional 401(k).