Roth 401(k) Ideal for Many Saving toward Retirement

As I wrote some time ago, the Roth 401k seems to be a dud so far because companies are taking a wait-and-see approach to it. However, for some, the Roth 401k is a great retirement investment. Here are some thoughts from the Associated Press:

"The Roth 401(k) is a fantastic opportunity to sock away a lot of money ... that grows tax-free for life," said Ed Slott, a Rockville Centre, N.Y., accountant who specializes in retirement issues. "If it's offered, I'd definitely contribute."

The major difference between the new accounts and the traditional 401(k)s has to do with taxes. Contributions to traditional 401(k)s are made from pretax earnings, meaning that they reduce a worker's taxable income dollar for dollar. But while the savings grow tax-deferred, the money is taxable when it's withdrawn in retirement. With the Roth 401(k)s, contributions are in after-tax dollars. The savings grow tax-deferred, but the money can be withdrawn in retirement tax-free.

Chris Bowman, vice president for retirement and investor services with Principal Financial Group in Des Moines, Iowa, said that besides tax diversification, there are other reasons some workers should choose Roth 401(k)s. They include:

• People who anticipate a meteoric career path, perhaps starting in a low-paying job but expecting to make it to the vice president's office someday, with a big retirement package.
• Young people who are seriously planning and saving now so they'll have significant income in retirement.

An interesting concept -- diversifying your tax exposure. Interesting.

For now, I have no choice. My company offers a traditional 401k only. We'll see where it all nets out in a year or so. Should be a fun ride to see which 401k is the king. ;-)

Comments

[Dus10]

My main question would be how match contributions are handled. Do I have to count them as taxable income now? That part seems confusing.

My employer just started offering them in January. I am not eligible to contribute until July 1st (Arghh! Nine months without contributing is a real drag!). I will probably continue to contribute to a traditional 401(k), however, because I want the tax breaks now, and, I use Roth IRA contributes to diversify my tax liabilities.

[Money Stuff]

I like your blog and I already add it on my blog site's list. If you can do the same thing for my blog-Money Stuff (http://2moneystuff.blogspot.com),that'll be really nice .thank you.

[gary lagana]

can a person who is self-employed open his own roth 401-k plan? does it require a TPA? also is there any books or infor, I can read up on this for the self-employed? one last question can you roll your roth ira into a roth 401-K? thanks gary