The ShareBuilder Roth 401(k)
Planning for a tax-free retirement is easier than you think
ShareBuilder 401k is dedicated to offering you the latest in retirement benefits.
Our Roth 401(k) is no exception, providing you with
an easy means to tax-free retirement income. Best of all, there is no additional
cost to offer it as part of your company's
Pay now, retire tax-free later
ShareBuilder 401k now offers you and your employees the option to invest some or
all of your paycheck contributions post-tax in a Roth 401(k).
You may benefit from paying those taxes now, because your Roth
401(k) contributions and earnings cannot be taxed again later2
— so all growth achieved with these investments will accrue tax-free.
Traditional 401(k)s were designed to give you a tax
break today on the money you contribute to your 401(k).
However, once you withdraw that money in retirement, the government taxes it as
income, growth and all.
Fortunately, the Roth 401(k) offers an alternative.
If returns are consistent over time, it has the potential to provide you with some
major tax advantages.
What's the catch?
No catch, but your paycheck will take a bigger hit today. If you can afford to pay
a bit more up front, you may stand to benefit greatly come retirement, when that
money may matter more to you and your family.
The numbers tell the story
Which type of 401(k) is best for you depends on whether
you think you'll be in a higher tax bracket in retirement and whether you can afford
a reduction in your take-home pay during your working years. There are significant
advantages to putting some or all of your contributions in a Roth
401(k). The younger you are, the better off you'll be, as workers in
their twenties and thirties are likely to move up the ladder over time into higher-paying
jobs – and therefore higher tax brackets. They're also in the best position
to take advantage of compounded growth over time.
There are also opportunities for people who are at a later stage in their careers
and who, being taxed at a lower tax rate in retirement, wouldn't seem to benefit
as much from a Roth 401(k).
A real eye-opener
To see just how much more money you could make, let's take a look at two investors
in a hypothetical example. Both are 45 years old, making $75,000 annually, and both
will retire at age 65 with a retirement span of 20 years. One chooses to put 8%
of his income into a Roth 401(k); the other opts to
contribute 8% to a traditional 401(k):
More Income in Retirement: Traditional Pre-tax 401(k)
or Roth 401(k)?
Age 45 earning $75K per year
A look at the numbers3
Take-home pay pre-retirement
Pre-tax 401(k) saves you $30K, a monthly take-home pay
advantage of $369
Nest egg at age 65
Savings are the same, given the same contribution percentage and rate of return
Post-tax retirement income
Roth 401(k) will provide you with $88,560 more in retirement
Advantage: Roth 401(k)
Roth wins this scenario with $58,560 more for you to live on
In this simple example, the Roth investor comes out ahead by $58,560. We strongly
recommend you run some numbers of your own to see what makes the most sense for
you. You may even wish to hedge and contribute to both types of account, so that
you stand to benefit no matter where you end up.
Make the Roth 401(k) part of your retirement benefits
The Roth 401(k) is already a feature of your overall
401(k) program. When you enroll your company online,
simply select the Roth option to make it available. It's that easy! Then when you
and your employees set up your individual accounts, you'll be able to choose from
the following options:
- Contribute all of your 401(k) withholding to the Roth,
- Split any percentage between pre-tax and post-tax 401(k)
- Ignore the Roth option and contribute all of your withholding pre-tax.
For business owners with employees, we strongly recommend including the Roth 401(k) as an attractive option to your program.
If you match employee contributions, your match must be pre-tax (contributions do
not go into the Roth 401(k) savings). In addition, it
is important to ensure that your payroll solution supports both traditional (pre-tax)
and Roth (post-tax) 401(k) contributions.
Frequently Asked Questions
Q: When can I access my Roth 401(k) retirement
A: Penalty-free redemptions from a Roth account can begin at age 59½
or after retirement, whichever comes later – just like traditional
Q: How long can I defer distributions from my Roth
401(k) retirement fund?
A: Required minimum distributions begin at 70½ – unless
the money is rolled into a Roth IRA, which doesn't require minimum distributions
and can pass to heirs.
Q: Do all of my company's employees need to choose the same type of
A: No, you and your employees will individually choose how to split
401(k) contributions between traditional and Roth plans.
Q: Can I choose different investments for different
A: If you choose to split your contributions between a Roth and a traditional
401(k), your investment selections and asset allocations
will be applied identically across both plans.
Q: Can I move money between the different 401(k)
A: No, once an amount is contributed it cannot be moved. However, you
may adjust your future percentage contributions to pre-tax and post-tax plans.