8 Keys to understand the retirement plan Roth 401 (k)
The main feature of this plan Roth 401(k) account is that the worker shall be exempt from taxes, but there are other details that need to know to know if it is the best for you.
The amount of options for retirement savings tax-advantaged continued to grow, as its participants. A relatively new alternative that is growing in popularity is the Roth 401(k) plan.
The retirement plan Roth 401(k)
401 (k) savings plans are implemented by employers who allow employees to save for retirement through automatic payroll deductions retirement. As its name suggests, the Roth 401(k) combines features of 401 (k) Traditional and Roth IRA retirement accounts. Employers increasingly offer alternatives Roth, therefore it would be wise to know how it works if you offer this option.
In a 401(k) traditional plan, employee contributions usually are made before taxes; ie that are deducted from your pay before calculating taxes on federal and state income. This reduces your taxable income and therefore, your taxes. You pay no taxes on these savings or their investment income until it begins to charge, usually at retirement.
With a Roth 401(k) plan contribution is after tax. Although you not receive a tax benefit in advance, your account will be exempt from taxes and charges will not be taxed later, as long as the account has a minimum age of five years and you have 59½ or older, or have become disabled or deceased.
Some things to remember
Know the required amounts. The combined annual limit of 2010 for employee contributions to 401 (k) -regular and / or Roth is $ 16,500 ($ 22,000 if you are over 50).
There are limitations. Contributions Roth 401(k) can not be converted later into a 401 (k) regular plan, and vice versa.
Consider the fines. Before age 59 ½ years of age, all charges 401(k), whether Roth or regular, may be subject to an early withdrawal penalty of 10 percent on the taxable amount. There are exceptions in case of death or disability, catastrophic medical expenses, loans for first home and if you have 55 years or older at time of retirement or termination of employment. See IRS Publication 575 for details (www.irs.gov).
When to withdraw their money. With any of the 401 (k) should begin withdrawing mandatory minimum capital income of your account once you turn 70 ½, as with a regular IRA. However, you can avoid the mandatory early retirement if you convert your Roth 401(k) account into a Roth IRA, which does not have that requirement. You can also convert a 401 (k) before taxes on a regular IRA and then into a Roth IRA; but you must pay taxes on the amount converted, as with any withdrawal from a regular 401(k).
How to choose the right plan. Many people are torn between contributions and Roth 401(k) regu-lar. Take the following as consideration to make the best choice: Your tax rate will be higher now or when you retire? Those in his years with higher incomes may have a higher marginal tax rate now than at retirement, while those who are just starting his career may be increasing their rates over time. Many financial experts believe that tax rates on income are likely to increase in the future due to federal budget deficits and the growing demand for Social Security and Medicare.
Perseverance pays off. The longer you have invested in a Roth 401(k), the greater the likelihood that benefits from the growth of tax-free account.
Note where will retire. Many states have taxes on low or no income.
Diversify. When you are not sure what type of 401 (k), or IRA is best for a particular situation, some people choose to diversify their retirement savings by providing both a Roth plan like a 401 (k) Regular .
Retirement plan Roth 401(k)