Roth 401(k) Plans

A new retirement account was signed into law on August 17, 2006. It is a component of a “regular” 401(k) Plan; however, the funding of a “Roth” 401(k) Plan is with after-tax dollars. This is similar to the Roth IRA but with higher funding limits and no limit on earnings to contribute. Money contributed to a Roth 401(k) Plan grows without tax and is distributed without tax. For 2018, of which you have until April of 2019 to contribute, the funding limit is $18,500, or $24,500 if over the age of 50. The funding limits for 2019 contributions will be $19,000 and $25,000 if over age 50.

Ask yourself the following question: Will you grow more wealth funding a Roth 401(k) in a non-deductible manner where the money grows then comes out income tax-free, or will you grow more wealth income-tax deferring money into a traditional 401(k) where the money withdrawn is fully income taxable at your current income tax bracket?

The answer is… it depends.  The real-world answer about Roth plans is that the vast majority of readers will in fact be better off using Roth Plans over traditional income tax-deferred plans.

Who should use a Roth 401(k)?

Anyone who will be retiring in the same or higher tax bracket.

Anyone who will be retiring in a tax bracket within 10% of their current tax bracket.

For example, if you are in the 40% tax bracket and will retire in the 30% tax bracket, using a Roth Plan is still a better financial tool than using a traditional tax-deferred retirement plan.

If you would like to download a four-page summary showing you the real-world math and why Roth 401(k) Plans are better than traditional tax-deferred plans, please click here.

If you are a small business owner and do not have a Roth 401(k) Plan as an option in your business’s qualified retirement plan, please click here to email us or phone 815-236-8756. To sign up for a free consultation or to just get more information click here.

Not only will we help you implement a plan, but we will look at all the various options to help you grow your wealth (like using a guaranteed 7% guaranteed return (accumulation value) product that will provide you a guaranteed lifetime income you can never outlive). To learn more about this product, please click here).