The ABCs of the Roth 401(k)

2006-06-23

Do you want a break now, or would you like it later?

That's the question investors have had to ask themselves when making the choice between a traditional IRA and a Roth IRA. A contribution to a traditional IRA could mean a tax deduction this year (assuming you're eligible), plus the investments grow tax-deferred. However, when money is taken out in retirement, the withdrawals are taxed as ordinary income.

The Roth IRA, however, permits investors to forgo a tax deduction now in exchange for tax-free growth -- the withdrawals wouldn't be taxed at all. Got that?

I hope you're keeping up, because things get more complicated. Many workers will be confronted with that "now vs. later" debate when they sign up for their employer-sponsored retirement plan. Why? Beginning this year, employers are able to offer the Roth 401(k), a retirement plan for for-profit companies, or the Roth 403(b), a retirement plan for nonprofits -- bless their hearts, unless they're lobbying organizations for evil people.

This is good news for many people, especially for those who are not eligible for the Roth IRA. However, don't think that all the rules about the Roth IRA are the same for the Roth 401(k) or 403(b). What are the differences? Let us count the ways.

Read more of this Roth 401k article

Related Articles:
» Roth 401K a New Option For Employers
» Roth IRA: What it is and how it works

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