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Roth 401k??

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Money Talk > Retirement Planning

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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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