401K Roth - 401k And Ira

The 401K Roth - An Added Retirement Savings Option

The 401k Roth is a new retirement savings option which became available in 2006. As the name would suggest it combines the features of the more traditional 401k but includes those that are associated with the Roth IRA.

As with the 401k plan this new savings option will be offered to employees by their employers. However although it has most features of the 401k the contributions a person makes to this savings plan will be made in after tax dollars. So although the person will not get an upfront tax deduction as they do with the traditional 401k plan they will see it grow tax free and any withdrawals made from it before the person retires are not subject to income tax payments. However you will need to be at least 59 1/2 years of age and have had this particular plan for more than 5 years.

This particular 401K Roth plan was introduced as a concept back in 2001 as part of the Economic Growth and Tax Relief Reconciliation Act. It was this act that stipulated that employers should start to offer the Roth 401k to their employees by the start of January 1 2006.

The great thing about this particular savings plan is that it could be beneficial to those individuals who earn a high income and can not contribute to Roth IRA's because of the restrictions placed on income. Certainly for this year the restrictions on high income earners in relation to the Roth IRA are as follows:-

1. If you are an individual then you must not earn between $99,000 and $114,000.

2. While if it is a married couple which are filing for their Roth IRA's jointly then they must not be earning between $156,000 and $166,000 jointly.

However with the new 401k Roth there are no restrictions or stipulations with regard to the income a person or couple are earning before they can contribute to this savings plan.

Yet for this particular plan, as with 401k plans generally, the person will still be subject to limits on how much they can contribute. For anyone below the age of 50 they are only able to contribute a maximum of $15,500, while those over the age of 50 can contribute up to $20,500. So this means that using a Roth 401k a person is able to save more money that can be used as their tax free retirement income than they would be able to using a Roth IRA.

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