Should You Place Your Money Into A Roth 401k? | Retirement Planning

Many employees when deciding on placing their monies into a 401k plan are wondering whether they should choose a traditional 401k plan or a Roth 401k plan. Here are a few of the basic rules pertaining to 401k contributions.

401k vs. Roth IRA: ? What is the difference between pre-tax and post tax contributions? Do you really get a benefit to compounding more money up fro?

Roth 401K plans, authorized in 2001, first went into effect in 2006. Unlike normal 401K plans, it allows participants to make after tax contributions. But the big advantage is that?s exempts you from paying tax on withdrawals. This means that you, depending on your investment acumen, could end up making millions of dollars without paying tax on it. Furthermore, when you withdraw money from a Roth 401K, it does not count towards your Social Security income tax limits.

Prior to the Pension Protection Act, signed into law in August 2006, a person earning over 100,000 in adjusted gross income couldn?t convert to a Roth. The law was originally set to sunset in 2010, but due to its popularity, it was extended. Starting in 2010, the limits are no longer in effect. The law also allows an employee to treat a portion of their contribution amount, up to 100%, as either a regular 401K or a Roth 401K.

Roth Conversion and 401k Limits and Deadlines: Get Expert Answers to Your Most Important 401k Questions Ask private wealth management advisor Thomas Quinlin about Roth Conversion when you talk with him ab?

An employee?s combined elective deferrals ? whether to a traditional 401(k), a Roth 401(k), or to both ? can?t exceed 15,500 for tax year 2008 if a participant is under 50; if they?re over 50, they may contribute an additional 5,000. Employer?s matching funds aren?t included in the 15,500 elective deferral cap, but are considered for the maximum section 415 limit, which is 46,000 for 2008. Employers are permitted to match contributions to a designated Roth account, but the matching funds must be made on a pre-tax basis, not be made into the designated Roth account, and can?t receive the Roth tax treatment.

Some experts believe that there?s no difference in whether you avoid taxes at the beginning of your investment as with a regular 401k or at the end. But if you go through the calculations, you will generally find that putting your money in a Roth 401K is a better deal if you think if you think you will be in a higher tax bracket than you?re now. To find out for yourself, however, many of the larger investment firms also have 401K calculators on their site where you can key in different scenarios to determine the best course of action for yourself.

This is an important section of this issue. The government doesn?t require that a corporation offer Roth 401k accounts. But, according to a survey by Hewitt Associates, about a third of the employers that they surveyed, who weren?t already offering Roth 401K accounts said they were likely to begin offering them in the near future. At the same time, that was before the global economic downturn. What the future holds is in limbo right now.

Let?s go on with this blog post. Many of the larger corporations have professionals in their human resources department that can give you help on selecting 401k options. Also, if you work with a financial planner, most of them will be able to advise you on the advantages and disadvantages of putting some or all of your investment funds into a Roth 401k plan.

You can find more retirement oriented articles such as retirement savings account and 401 k rollover on our website.

Source: http://retirement-401k.com/should-you-place-your-money-into-a-roth-401k/

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