The Roth 401(k) is a New type of contribution that can be made by the participants of the 401 (k) retirement plan. The contribution is said to be made by the employees what is a new thing, because the contributions were made before mostly by the employers and the money was taken from the salaries of the subordinated participants. The Roth 401(k) is not so new, but still not the best known version of 401(k), however, one of the most beneficial ones and one of them that gives the possibility to make decisions not only to the boss of the whole undertaking but also the ordinary co - workers who had not had such a possibility before.
What are the main advantages of this 401(k) type?
First of all, the contributions made by the employees are already the so called after tax contributions, so the income that they will earn in the future is totally tax free. Even if there was a tiny taxation, it can be exempted form it upon a proper distribution. The advantage is very easy to perceive - the savings will increase faster and without any additional fees that would decrease them, in fact.
The people who will decide for this type of 401(k) will be allowed, in some cases, to avoid taxes from the invested income - it means that they will be obliged to pay for the investments and for nothing more. The money that they will earn from this investments will not be submitted to taxation.
Moreover, the contribution limit is higher than by a traditional Roth IRA (the limit does not depend on the height of the income if you are eligible, the amount of money is fix) and 401(k) (maybe not always, because here it depends on the height of the percentage of a salary given to each worker and this can be higher in fact). The amount of money that you can contribute is $15 000 if you are under 50 years old, and if you are older, you can put into the account up to $20 000.
Can everyone use this possibility?
Yes. But if you are the owner of a business, you do not have to add this possibility to the plan, but you can offer it to your employees. If anyone will agree, he or she can use this option and make additional contributions. Each of the participants will be allowed to mix this two given options, 401(k) and Roth 401(k) as well. The only thing that the members of your staff will be obliged to do is to fill up a so called enrollment form. It will not take them very much time. And, another good news - in contrary to the Roth IRA this plan is available for everyone, you do not have to obey any income limits to be allowed to make such contribution. It is just a possibility that you can use or not. But if the earned income from this contributions will exceed $45 000, you will have to pay some taxes when you will be making a withdrawal.