A Roth 401(k) retirement plan is similar to a regular 401(k) plan, but with the timing of the plan's taxation representing a significant difference. The traditional 401(k) plan requires before-tax paycheck contributions with no tax liability placed on the earnings until funds are withdrawn. The Roth 401(k) plan requires after-tax paycheck contributions, but the withdrawals are tax-free.Know More
The basic difference between the Roth 401(k) and the traditional 401(k) is that Roth plan contributions are taxed during the year that they are earned, while the traditional 401(k) contributions are taxed when they are withdrawn. The amount of take-home pay remains the same for both plans because the Roth plan takes the taxes out of the deduction and then places the remainder of the amount into the 401(k) account.
The matched contributions that an employer pays into a Roth 401(k) plan are before-tax. These funds are kept in a traditional and separate 401(k) account and become fully taxable when withdrawn by the employee.
Beginning January 1, 2006, employers were able to offer their employees the Roth version of the 401(k), but the additional internal accounting procedures required for the newer plan are believed to have slowed down the overall enthusiasm for the Roth plan among employers. Larger firms appear to have demonstrated a greater acceptance for the Roth 401(k), and it is anticipated that smaller firms will follow suit. About 40 percent of employers were offering the Roth 401(k) plan in 2011, and the number increased to more than 50 percent of employers in 2013, as reported by Forbes Magazine.Learn more about Financial Planning
Withdrawal from a Roth IRA occurs at anytime. However, to avoid penalties for early withdrawals the participant must obtain the age of 59.5 years and own the account for at least five years, explains CNN Money.Full Answer >
Eligibility for contributing to a Roth IRA is dependent on limits set by the IRS on income for each year of contributions, according to RothIRA.com. Marital status also impacts the determination of the yearly limits.Full Answer >
Individuals are able to convert their 403(b) into a traditional Roth IRA when they leave their job that carries the 403(b), states Investopedia. However, if a person leaves his current job for an employer who does offer a 403(b), he cannot convert his retirement plan into a Roth IRA.Full Answer >
There are three popular retirement plans for self-employed people: the SEP-IRA, SIMPLE IRA and solo 401(k) plans. These plans differ according to the rules governing them, and the right plan depends on how much an individual wants to contribute and whether the concerned individual has, or plans to have, employees.Full Answer >