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Roth 401k-New Retirement Planning for 2006

Posted on: 18th Nov, 2005 01:23 am
I want to know about Roth 401(k). What is it?

Hi Fizz,

Welcome to MortgageFit Forums. That is a cool name.

With Roth 401(k) your deferral amount is made in after-tax dollars. And the earnings on Roth deferrals will be tax free if the contribution remains in the plan for atleast 5 years after Roth deferrals commence and if the participants do not take withdrawals before attaining the age of 59 and 1/2 years (this includes death and disability).

More information on this Retirement plan is available in our section on Roth 401(k) Plan rules and features by IRS

God Bless You.

Posted on: 18th Nov, 2005 01:47 am

Thank you very much for attending my query samantha. I knew something like this was due to launch in 2006 but didnt knew what is it exactly. But you have cleared it all.

Posted on: 18th Nov, 2005 01:57 am

I have heard that Roth401(k) will be implemented from january. I have understood what is it from the above discussiuon. But what are its advantages?

Posted on: 20th Nov, 2005 07:57 pm
Hi Kemp,

There are various advantages of Roth 401(k).

  • One can make the contribution after the age of 70 also.
  • An eligible individual can contribute upto a specified limit annually.
  • Eligibility for contribution is not restricted by active participation in an employer's retirement plan.

God Bless You.

Posted on: 20th Nov, 2005 08:23 pm

Just got some more infomation on Roth 401K.

Roth 401K is for limited time only it will expire at the end of 2010. After 2010 Roth contribution could remain in the plan but no new Roth contributions can be made after that.

Posted on: 22nd Nov, 2005 07:38 pm
Why would one choose the Roth 401K over the regular 401K? This stuff is so confusing to me.
Posted on: 12th Dec, 2005 10:11 am
The main difference I feel is that the contributions to the Roth plan account are with after-tax dollars while in 401k plan its pre-tax dollars and you do not have to pay tax on withdrawal after retirement.

Posted on: 12th Dec, 2005 10:26 am
Hi djs,

Welcome to MortgageFit Forums.

It is a newly introduced concept and so it's quite natural to be somewhat confusing unless you go through it. May be I can help you to clear your confusions.:)

Although, almost the same, there are certain advantages for Roth 401(k) over regular 401(k). First under regular 401(k) you may not be eligible if your income level is high but you can certainly qualify for Roth 401(k) as it does not have any limit to income levels.

Secondly, suppose you contribute $20,000 in a regular 401(k) in 2006 instead of Roth 401(k) plus the tax savings in a taxable account(which we take for example as $5,000 assuming that the person is in 25% bracket).

In this case the regular 401(k) may come ahead in the short run id the tax bracket during the contribution period is higher than distribution period. But over the long run, Roth 401(k) will prove ahead, if you consider the advantage of the fact that the limit for your contribution is effectively higher, since a $15,000 in a Roth account is equivalent to $20,000 in regular account (assuming 25% tax rate). In a Roth account you can contribute more and leave it intact longer and this makes Roth 401(k) more beneficial in the long run considering your tax rate during the distribution period is lower than your tax rate in the contribution period.

In case of Roth 401(k) plan you may not be allowed to get the benefit of the contribution from pre-tax dollars but you will be allowed to withdraw tax-free money after retirement. Income tax can be avoided on the cash withdrawn from 401(k) after retirement.

To get maximum benefits you can make contributions a portion of the allowable limit, which is $15,000 to a Roth 401(k) plan account and the rest to a 401(k) account. This will allow you to contribute after-tax dollars whereas a 401(k) plan account will permit for pre-tax contributions.

Hope this will help to understand in a better way.

God bless you.

For MortgageFit,
Posted on: 12th Dec, 2005 11:09 am
The table given below provides the tax rate applicable on the last dollars earned after all kinds of deductions, for example, the standard deduction, deductions for dependents, deductions on mortgage interest and pre-tax contributions to a 401k Plan, and credit related to child care.

Tax Rate
Married Filing Joint and Surviving Spouces
Heads Of Households
Married Filing Seperate
$0 - 15,100
$0 - 7,550
$0 - $10,750
$0 - 7,550
$15,001 - 61,300
$7,551 - 30,650
$10,751 - 41,500
$7,551 - 30,650
$63,001 - 123,700
$30,651 - 74,200
$41,501 - 106,000
$30,651 - 61,850
$123,701 - 188,450
$74,201 - 154,800
$106,001 - 171,650
$61,851 - 94,225
$188,451 - 336,550
$154,801 - 336,550
$171,651 - 336,550
$61,851 - 94,225
over $336,550
over $336,550
over $336,550
over $168,275

Related Forum Discussion
Posted on: 20th Dec, 2005 10:04 pm
When the Roth IRA was introduced, we had the opportunity to convert a regular IRA to a Roth IRA by paying the taxes over a four year period. Is the same provision included in the Roth 401k so that a person can also convert money already in an existing 401k to a Roth 401k???
Thanks, Bruce
Posted on: 02nd Jan, 2006 01:53 pm

You can't roll money directly from a 401(k) plan to a Roth 401(k) without a penalty. Instead, roll it over to a regular IRA and then convert that account to a Roth 401(k). Since money that goes into a Roth account must be after-tax money, you must pay tax on the amount that will be converted.
Posted on: 02nd Jan, 2006 02:34 pm

I agree with Adny; you really cannot roll over from a 401k to a Roth 401k plan. You will have to first roll over to a traditional IRA (Independent Retirement Account) through a custodial account or a trust and then convert it into a Roth 401K plan.

Also, if you want to withdraw any amount while your 401k contribution is held in an IRA account, then you may have to pay penalties unless if you are at least 59 and 1/2 years of age.

Posted on: 02nd Jan, 2006 09:58 pm
Can you have both a employer funded 401-K and a Roth 401-K?
Posted on: 05th Jan, 2006 08:32 am
Hi Tim,

There are no limitations in investing as in Roth IRA. Investors can avail the opportunity to contribute to a Roth 401(k), a traditional 401(k) or a combination of the two.

If you want to make contributions to both, you can't contribute twice as much money as the limit of contribution is same for a traditional account, a Roth or both.

Hope this information will help you.

Posted on: 05th Jan, 2006 08:43 am
You mentioned the difference in a 401k & the new Roth 401k, but what's the diff. in the traditional Roth vs the new Roth 401k.
Posted on: 26th Jan, 2006 01:29 pm
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