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October 20, 2005


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One of the unresolved issues with Roth 401(k) plans is how employer matches, if you have them, are handled. Since the contributions are taxable income, in effect, the employer contributions would also be succeptible to tax.

A good friend that is a benefits and pension attorney is currently recommending that his clients setup a dual 401(k) plan. Use the Roth feature for employee contributions, and stash the matching funds in a traditional 401(k) account so employees don't have to pay taxes on them.

As soon as I read about the possibility of the Roth 401(k) being introduced, I sent an email message to my HR department. I received what appeared to be a canned responses stating that they are reviewing the details and will announce their decision either later this year and early next year. I am sure this is the same response that most employees are receiving from their employer.


ary4rVanguard is only offering Roth 401k to hugh companies with either certain number of participants or a certain amount of dollars. Most big firms, such as Fidelity, Schwab, are doing it the same way. A smaller company, 9 employees and a small retirement amount, 50k a year, won't be able to open it at any of the big firms. I know this sounds like a great idea, Roth 401k, but jumping into a untested plan could cause excess work. Let the big dogs test out these accounts on their employees, then jump in. I've heard so many people wanting to jump right in to these accounts but legislation hasn't been completely finalized. One more year of tax deferal contributions won't kill anyone.

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