Academic journal article Journal of Accountancy

Top Things to Know about Roth 401(k)s

Academic journal article Journal of Accountancy

Top Things to Know about Roth 401(k)s

Article excerpt

Roth IRAs have become popular retirement vehicles, but the low contribution limits and participant income limitations have prevented many people from taking advantage of them. The Economic Growth and Tax Relief Reconciliation Act of 2001 provided for designating Roth contributions within a qualified plan. Now many individuals previously excluded can take advantage of the tax-free growth of Roth contributions through a Roth 401(k).

The Roth 401(k) is a feature that can be added to a new or existing company-sponsored defined-contribution pension plan, including traditional 401(k)s, safe-harbor 401(k)s, and 403(b) tax-sheltered annuities. Employees may elect to designate a portion or all of their elective contributions as Roth contributions. Contributions are included in gross income at the time the employee would have received the contribution amounts in cash if the employee had not made the cash or deferred election. Earnings on the account accumulate tax-free, and distributions, if they are qualified, are tax-free.

[ILLUSTRATION OMITTED]

A qualified distribution is one that occurs at least five years after the year of the participant's first designated Roth contribution and is made on or after the participant reaches age 59 1/2, because of the participant's disability, or on or after the participant's death.

An individual may make both traditional pretax and Roth-designated contributions in a plan year. In 2008, an individual has an aggregate elective contribution limit of $15,500 for all designated Roth contributions and traditional pretax contributions (with an additional $5,000 if the participant is age 50 or over). The maximum employee and employer annual contribution is the lesser of $46,000 or 100% of compensation. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.