In his 2014 State of the Union message, President Obama announced a new retirement savings program for people who do not curr...Read more
A New Retirement Savings Option: The Roth 401(k)
- November 3rd, 2005
Some employees will soon have a new retirement savings option: the Roth 401(k). Passed into law in 2001, the new Roth 401(k) first becomes available on January 1, 2006. Not all employers will offer the plans as benefit to employees, however; a survey of employers by Hewitt Associates found that only 35 percent are considering it.
The Roth 401(k) differs from a traditional 401(k) the same way a Roth IRA differs from a traditional IRA. Contributions to a traditional 401(k) are made pre-tax, so while it reduces your taxable income in the year you contribute to it, you have to pay taxes on the money you withdraw during retirement. On the other hand, contributions to the Roth 401(k) are made after taxes. This means you won't have to pay any taxes when you withdraw the money. The Roth 401(k) has the same contribution cap as the traditional 401(k): a maximum of $15,000 a year or $20,000 a year if you are over age 50.
So if you have the option, which one is better? It is impossible to know for sure unless you can see into the future. But the general rule of thumb is that if you believe you will be in a higher tax bracket when you retire than the tax bracket you are currently in, the Roth 401(k) is better. Of course the tax system could change and taxes could go up or down, so predicting your tax bracket could be difficult. It is also unclear how long the Roth 401(k) will be available. Right now it is scheduled to expire in 2010 unless Congress extends it. If it expires, the account will stay, but you will not be able to make new contributions.
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Local Elder Law Attorneys in Ashburn, VA
Hale Ball Carlson Baumgartner Murphy PLC
Jean Galloway Ball is certified in Elder Law by the National Elder Law Foundation. She is a 1977 honors graduate of the National Law Center, George Washington University, and she did her undergraduate work at the University of California at Berkeley, graduating Phi Beta Kappa in 1971. She is admitted to practice in Vir...
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For Jeffrey Hammond, the practice of Elder Law is personal. Jeff’s many years of experience in law and in business did not prepare him for the crisis he faced in 2005 and 2006 when his father suffered a stroke and both of his parents suffered from dementia and other medical problems. At that time, Jeff began an i...
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Mindy Felinton concentrates in the areas of Medicaid planning, Veterans' Benefits, asset protection, nursing home planning, elder law, wills, estate planning, trusts, living wills, powers of attorney, probate administration and trust administration and began her legal career 30 years ago as an Assistant State Attorney...