401(k) Corner: Roth 401(k)…is it right for you?

While taxes are fresh on your mind, now might be the best time to review whether you should contribute to your 401(k) with pre-tax or after-tax money.   Contributions that are put back before-taxes are the Traditional 401(k), while those that are put back after-taxes are the Roth 401(k).

Your tax planner can help you in determining if this is advantageous for you.

A few questions that are representative of those asked of us are…

Will the Employer Match and Profit Sharing be in tax-deferred or Roth monies?

The Employer Match and Profit Sharing contributions will always be tax deferred, even if your contribution is a Roth contribution.

I’m a trustee of a traditional 401(k) plan, and I’d like to contribute to a Roth 401(k), do I have to set up a completely new 401(K)?

No, but you likely will need to amend your Plan Document to include language in it.  Discuss this with your provider.

Do Required Minimum Distribution rules count towards Roth 401(k)’s when I turn 70 ½?

Yes, RMD’s also apply to Roth 401(k) balances.  However, Roth 401(k) monies that are rolled over into a Roth IRA do not have RMD requirements.

Do the same contribution limits apply to Roth 401(k)s and Traditional 401(k)s?

                Yes.  However, since the limits are the same, and the Roth 401(k) contribution has already been taxed, it is effectively a larger contribution.  For larger tax deferral avenues, click here.

Are there more fees involved with a Roth 401(k)?

Fees will be consistent with Traditional 401(k), however, you will likely incur costs to amend your Plan Document.