Schwab Login

  • Home
  • About
    • GET STARTED:
      CONTACT US TODAY
      • Calendar
    • Team
    • Our Mission
    • What Matters Most
    • Community
      • Seattle Children’s Hospital
      • Mercer Island Schools Foundation
      • Mercer Island Chamber of Commerce
    • Glossary
  • Services
    • Retirement
    • Estate
    • Investment
    • Insurance
    • Money
    • Lifestyle
  • Onboarding
  • Calculators
  • Schwab Login
  • Financial Insights
Get Started
Schwab Login

  • Home
  • About
    • GET STARTED:
      CONTACT US TODAY
      • Calendar
    • Team
    • Our Mission
    • What Matters Most
    • Community
      • Seattle Children’s Hospital
      • Mercer Island Schools Foundation
      • Mercer Island Chamber of Commerce
    • Glossary
  • Services
    • Retirement
    • Estate
    • Investment
    • Insurance
    • Money
    • Lifestyle
  • Onboarding
  • Calculators
  • Schwab Login
  • Financial Insights
Get Started

  • Home
  • About
    • GET STARTED:
      CONTACT US TODAY
      • Calendar
    • Team
    • Our Mission
    • What Matters Most
    • Community
      • Seattle Children’s Hospital
      • Mercer Island Schools Foundation
      • Mercer Island Chamber of Commerce
    • Glossary
  • Services
    • Retirement
    • Estate
    • Investment
    • Insurance
    • Money
    • Lifestyle
  • Onboarding
  • Calculators
  • Schwab Login
  • Financial Insights

What Is a Roth 401(k)?

  • Home
  • Blog
  • Retirement
  • What Is a Roth 401(k)?
What’s So Great About a Rollover?
April 21, 2022
Catch-Up Contributions
April 21, 2022
Published by Tyson Farmer on April 21, 2022
Categories
  • Retirement
  • Retirement-Articles
Tags
RETIREMENT READ TIME: 5 MIN

While many people are familiar with the benefits of traditional 401(k) plans, others are not as acquainted with Roth 401(k)s.

Since January 1, 2006, employers have been allowed to offer workers access to Roth 401(k) plans. And some have introduced offerings as part of their retirement programs.1

As the name implies, Roth-401(k) plans combine features of 401(k) plans with those of a Roth IRA.2,3

With a Roth 401(k), contributions are made with after-tax dollars – there is no tax deduction on the front end – but qualifying withdrawals are not subject to income taxes. Any capital appreciation in the Roth 401(k) also is not subject to income taxes.

What to Choose?

For some, the choice between a Roth 401(k) and a traditional 401(k) comes down to determining whether the upfront tax break on the traditional 401(k) is likely to outweigh the back-end benefit of tax-free withdrawals from the Roth 401(k).

Please remember, this article is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax professional before adjusting your retirement strategy to include a Roth 401(k).

Often, this isn’t an “all-or-nothing” decision. Many employers allow contributions to be divided between a traditional-401(k) plan and a Roth-401(k) plan – up to overall contribution limits.

Considerations

One subtle but key consideration is that Roth 401(k) plans aren’t subject to income restrictions like Roth IRAs are. This can offer advantages to high-income individuals whose Roth IRA has been limited by these restrictions. (See accompanying table.)

Traditional
401(k)
Roth 401(k) Roth IRA
Contributions Contributions are made with pretax dollars Contributions are made with after-tax dollars Contributions are made with after-tax dollars
Income Limits No income limits to participate No income limits to participate For 2022, contribution limit is phased out between  $204,000 and $214,000 (married, filing jointly), and between $129,000 and $145,000 (single filers)
Maximum Elective Contribution* Contributions are limited to $20,500 in 2022, ( $27,000 for those over age 50)* Aggregate contributions are limited to $20,500 in 2022, ($27,000 for those over age 50)* Contributions are limited to $6,000 for 2022, ($7,000 for those over age 50)
Taxation of Withdrawals Qualifying withdrawals of contributions and earnings are subject to income taxes Qualifying withdrawals of contributions and earnings are not subject to income taxes Qualifying withdrawals of contributions and earnings are not subject to income taxes
Required Distributions In most cases, distributions must begin no later than age 72 In most cases, distributions must begin no later than age 72 There is no requirement to begin taking distributions while owner is alive

* This is an aggregate limit by individual rather than by plan. The total of an individual’s aggregate contributions to his or her traditional and Roth 401(k) plans cannot exceed the deferral limit – $20,500 in 2022 ($27,000 for those over age 50).

Source: IRS.gov, 2022

Roth-401(k) plans are subject to the same annual contribution limits as regular 401(k) plans – $20,500 for 2022; $27,000 for those over age 50. These are cumulative limits that apply to all accounts with a single employer; for example, an individual couldn’t save $20,500 in a traditional 401(k) and another $20,500 in a Roth 401(k).4

Another factor to consider is that employer matches are made with pretax dollars, just as they are with a traditional 401(k) plan. In a Roth 401(k), however, these matching funds accumulate in a separate account, which will be taxed as ordinary income at withdrawal.

Setting money aside for retirement can be part of a sound personal financial strategy. Deciding whether to use a traditional 401(k) or a Roth 401(k) often involves reviewing a wide range of factors. If you are uncertain about what is the best choice for your situation, you should consider working with a qualified tax or financial professional.

1. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth 401(k) distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal also can be taken under certain other circumstances, such as a result of the owner’s death or disability. Employer matches are pretax and not distributed tax-free during retirement. Once you reach age 72, you must begin taking required minimum distributions.
2. In most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 72. Withdrawals from your 401(k) or other defined contribution plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty.
3. Roth IRA contributions cannot be made by taxpayers with high incomes. In 2022, the income phaseout limit is $144,000 for single filers, $214,000 for married filing jointly. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal also can be taken under certain other circumstances, such as a result of the owner’s death or disability. The original Roth IRA owner is not required to take minimum annual withdrawals.
4. IRS.gov 2022

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright<script type=””>document.write(new Date().getFullYear())</script>FMG Suite.

Share
0

    Have A Question About This Topic?



    Related posts

    Enjoying on the Beach
    April 26, 2022

    Retiring in a Post-Pandemic World


    Read more
    Tax Preferred Growth
    April 26, 2022

    The Power of Tax-Deferred Growth


    Read more
    Buying a Vacation Home
    April 26, 2022

    Questions to Consider When Buying a Vacation Home


    Read more

    Lorem ipsum dolor sit amet,
    consectetur adipiscing elit, sed
    do eiusmod tempor incididunt ut
    labore.

    About Us
    • Team
    • Our Mission
    • What Matters Most
    • Services
    • Useful Links
    • Articles
    • Presentations
    • Calculators
    • Videos
    Resource Center
    • Retirement
    • Estate
    • Investment
    • Insurance
    • Money
    • Lifestyle
    CONTACT INFORMATION

    [email protected]

    (206) 883-8342

    Mercer Island Office
    P.O. Box 158

    disclosure

    Check the background of your financial professional on FINRA's BrokerCheck.

    The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named representative, broker - dealer, state - or SEC - registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

    We take protecting your data and privacy very seriously. As of January 1, 2020 the California Consumer Privacy Act (CCPA) suggests the following link as an extra measure to safeguard your data: Do not sell my personal information.

    Copyright 2022 FMG Suite.

    Vega Financial LLC (”VF”) is a registered investment advisor offering advisory services in the state of WA and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or
    sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering.

    This information should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or

    complete loss of funds invested. It should not be assumed that any recommendations made will be profitable
    or equal any performance noted on this site. The information on this site is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable
    laws, Vega Financial disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose. (VF) does not warrant that the information on this site will be free from error. Your use of the information is at your sole risk. Under no circumstances shall (VF) be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the information provided on this site, even if (VF) or a (VF) authorized representative

    has been advised of the possibility of such damages, information contained on this site should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.

    © 2022 vega-financial.com. All rights reserved