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Roth 401(k) Plans At A Glance

Roth 401k Plans

A Roth 401(k) plan is a retirement savings option that combines aspects of a Roth IRA plan Another contrast between a Roth 401(k) plan and a traditional 401(k) plan is that the former allows the account holder to make contributions with both pre-tax and post-tax dollars. This means that the account holder, through their employer, can make contributions at any time just as long as those contributions do not exceed the 401(k) limit.

Traditional 401(k) plans only accept contributions made with pre-tax dollars meaning that contributions are taken from the employee's wages before the employee receives them. Another difference between to two 401(k) plans is that the distribution of funds from a Roth 401(k) must occur when the account holder has reached the age of 70.5. However, if the account holder transferred the Roth 401(k) into a Roth IRA after leaving employment, the funds can be withdrawn upon reaching the age of 59.5.

The availability of Roth 401(k) plans was intended to be terminated at the close of 2010 under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). This act made considerable amendments to the Internal Revenue Code including Sections 401 and 402A. However, under the Pension Protection Act of 2006 (PPA), the availability of Roth 401(k) plans has been extended.

NEXT: Understanding Other Retirement Planning

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