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The Business of Savings
Three reasons why the Roth 401(k) option is good for you
The Roth 401(k), not to be confused with its Roth IRA cousin, is a fantastic option that top 401(k) plans offer. It gives employees the option to contribute after-tax today into their 401(k) account and then when they reach retirement age of 59 1/2, they can make withdrawals tax-free, earnings and all!
Here are three great reasons you’ll want the Roth option for you and your employees:
No income limits! Anyone can contribute to a Roth 401(k) up to the 401(k) contribution limit (that’s $16,500 in 2009) no matter how much you earn. This is much different than the Roth IRA which has $5K contribution limit and is restricted to those earning $120K or more.
Great way to better manage taxes (a tax diversification strategy). Especially appealing for younger employees and anyone who thinks their tax rate will be higher when they use their Roth savings in retirement than it is today. This could be due to your income growth and/or the government raising taxes over time prior to the time you’ll need to use your Roth savings.
There is no cost to make it a part of your 401(k) plan. It’s simply an option that employees can choose to use or not. You can even elect to put part of your contributions in the Roth and part on a tax-deferred basis.
To learn more details about the Roth option, simply read our guide.