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Roth 401k??

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ekelswa06
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Roth 401k??  Reply with quote  

Can someone please explain to me the difference between a Roth 401k and a Roth IRA? Thank you.
Post Thu Sep 05, 2013 12:38 am
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clydewolf
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Re: Roth 401k??  Reply with quote  

quote:
Originally posted by ekelswa06
Can someone please explain to me the difference between a Roth 401k and a Roth IRA? Thank you.

I'll try....

Both the ROTH 401k and ROTH IRA are funded by your after tax contributions.
You can contribute up to $17,500 in 2013 to the 401k.
You can contribute up to $5,500 in 2013 to the IRA.

Both the 401k and the IRA grow tax deferred.

You can remove your annual contributions from the IRA at any time for any reason free from tax and penalty.
You can not take your contributions from the 401k as long as you are employed by the sponsoring employer.

At age 70 1/2 you must begin to take RMDs from the 401k including the ROTH part.
The distributions will be taxed as shown below.

When you have a 401k with deductible contributions and ROTH contributions, each distribution will contain a portion from both account making part of the distribution subject to income tax. Example: In prior years you have contributed to the 401k deductible contributions. That account is now worth $30,000. Last year you made after tax contributions to your ROTH 401k, and that account is now worth $10,000. Taking a distribution of $10,000 you would incur tax on $7,500 and have tax free $2,500.

I am sure there is more, but that is the main differences and similarities.
If you have specific questions read the Summary Plan Description for your 401k plan.
Post Thu Sep 05, 2013 1:06 am
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coaster
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To make it very simple: a Roth 401(k) is set up and offered by an employer (who may or may not make employer contributions); a Roth IRA is something you do on your own (and strictly with your own money). Wink

... though ... I suspect you probably already knew that.

So why did I post it? Sort of to emphasize that, as far as your retirement planning goes, with respect to the differences, they are mostly just three things: (1) where the money comes from and how much; and (2) what that money gets invested in; and (3) who's in control. In the case of the 401(k), usually some of the money comes from the employer; naturally they're going going to have some control over it; mostly with respect to where it gets invested. In the Roth IRA it's all your own money; and you're in total control. That's the usual trade-off: more money vs. more control.

~Tim~
Post Thu Sep 05, 2013 4:50 am
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