Roth 401k

• Your employer will offer you to make after-tax contributions through payroll deductions(Maximum Contribution Amount 2010 & 2011 - $16,500)
• Doesn't reduce taxable income
• Not required but sometimes an employer will contribute to the plan the same way as a Traditional 401k
• At age 59 you can withdraw from the plan without penalties and tax-free
• Can be directly rolled over into a designated Roth IRA account without penalties

So what if my employer offers both Traditional and Roth IRA, how do I know which one to choose?

This all depends on where you plan to be financially when you retire. If you plan to be in a low tax bracket when you retire then the pre-tax contributions from the Traditional 401k will be better for you.

Keep in mind that by the time you retire you may have fewer deductions, less dependents living with you, the house is possibly paid off, etc. This would give you less to write off on your taxes therefore putting you in a higher tax bracket and keeping less of your money.

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If you plan to be in the same or higher tax bracket then a Roth 401k is the better plan for you. This way you won't get killed in taxes because you already paid them when you we're in a lower tax bracket.

Can I contribute to both Traditional and Roth 401k?

If you are offered to do both then you can take advantage of that as well if it makes sense to your financial needs. But remember that if you have multiple 401k plans you can only contribute a maximum of $16,500 in total between the two retirement plans.

IMPORTANT:You don't want to turn down free money so be sure to check with your employer to find out if and what the company will contribute. If they only contribute to one of the 401k retirement plans be sure to take advantage of that plan.

What questions do you have regarding retirement plans?

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Posted in Business Post Date 04/02/2018