15k limit by year 2006. Are you ready?

[Aggie76]

imported post

If my understanding is correct, I just realized something after reading these notes.

If I max out my TSP at $15k for 2006, that means I cannot put anything into a ROTH IRA. Is that correct? I was considering putting $15k into TSP(pre-tax) and $4k into ROTH IRA (post-tax). But it sounds as if I cannot do that but I am not sure.

Just to keep thinkgs somewhat simple, I am not looking at catch-up for those of us over 50 in this example.

 

[Pete1]

imported post

From InvestorSolutions.com:



Coming Soon: The Roth 401(k)
Richard Feldman, CFP, MBA
08/02/2005 -





The Roth 401K may well be the best retirement vehicle to come along in the past 20 years. The Internal Revenue Service has recently released proposed regulations for retirement plans but is still soliciting comments. Individuals will want to make sure that they have enough information to choose from their existing 401K option or the new Roth 401K option.



Most individuals are not familiar with a Roth 401(k) option because they haven't been available in the past and will only become available on January 1[suP]st[/suP] 2006. The Roth 401K option was included in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).

Roth 401K

The Roth 401K will be very similar to the Roth IRA where your contributions go into the retirement vehicle on an after tax basis. This means the funds that an individual contributes to an account have already been taxed at the time of contribution. The contributions then accumulate with no taxes owed on the dividends, interest, or capital gains while inside the account or when the funds are finally distributed. There are some requirements that must be met in order to maintain tax free status. Withdrawals are tax free after age 59 ½ and if five years have elapsed from the date of the first contribution to the plan. Taxes and penalties are waived if a participant dies or is disabled. Required minimum distribution rules are the same as current 401K rules where a participant must start taking distributions by April 1[suP]st[/suP] of the year after they turn 70 ½ . A Roth 401(k) can be rolled into a Roth IRA should a participant leave the company they work for. Roth IRAs do not have rules requiring minimum distributions so employees could effectively get around the Required Minimum Distribution rules by rolling their funds into a Roth IRA. This would allow individuals to maximize the time that funds are accumulating on a tax deferred basis.

Eligibility & Contribution Limits

Unlike a regular Roth IRA there are no income restrictions on contributing to a Roth 401(k). Individuals can contribute up to $15,000 for the 2006 tax year. Similar to a regular 401(k) participants that are over the age of 50 are allowed a catch up contribution of $5,000. This would bring the amount to $20,000 in total contributions if you are over the age of 50 that you could contribute to a Roth 401(k).

How long with the Roth 401(k) be available?

Sunset provisions on the Economic Growth and Tax Relief Act of 2001 (EGGTRA) are set to expire after the 2010 tax year. This could mean that the Roth 401(k) option could only be around for the next five years depending on what congress does.

Summary

There are still several issues that need to be addressed by the IRS in terms of compliance issues for the Roth 401(k). Employees should be vocal in trying to get there employers to add a Roth 401(k) option. Even if the Roth 401(k) were to last five years individuals that maxed out their Roth 401(k) contributions would be able to contribute $75,000 to their accounts. This money would grow on a tax deferred basis and never again be subject to federal income taxes. If you are over the age of 50 the amount would increase to $100,000 that you could contribute. Please see my next article for an actuarial comparison of the Roth 401(k) versus a regular 401(k)

To read Part II of this article click here

 

[pyriel]

imported post

If I am reading this correctly, we should be able to do 15k for TSP, 4k for ROTH IRA, and 15k fo ROTH 401k (if they ever offer it for government employee).

15k for tsp is pre tax, 15k for ROTH IRA is post tax so the rules is not the same

4k ROTH IRA and 15k ROTH 401k are both post tax. IRS already have a rule in place with ROTH IRA. Rules for ROTH 401k is still being formalized but 15k seems to be the quota they are looking for.

So, there is a possibility to do all of them at the same time. Who in their right mind would do such a thing... Where do we sign up???

 

[Birchtree]

imported post

And please don't forget the over 50 catch up for both plans. $25K for both. This is a wonderful incentive of a silver thread to keep working and saving for investments. The total then would be $45K plus any match. I think I'll ask for a raise.

 

[Rolo]

imported post

Aggie76 wrote:

If I max out my TSP at $15k for 2006, that means I cannot put anything into a ROTH IRA. Is that correct?

Incorrect.You can do both.