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Does anyone know when/if a ROTH 401(K) type TSP option will exist for those in the military?
Information about the Roth 401(K) which starts for non-governmental civilians in January 2006...
•Employees will be able to contribute after-tax dollars to the Roth 401(k). The money will be held in a separate account from contributions to your regular 401(k). You decide what percentage of your retirement plan contributions go to either account.
•You'll be able to make the maximum contribution allowable under 401(k) rules. The 2006 401(k) contribution limits allow employees less than age 50 to sock away up to $15,000 -- $20,000 for employees age 50 or older.
•For those who want to save after-tax money, this is a much quicker route than saving in the Roth IRA, which has contribution limits of $4,000 for those less than age 50 and $5,000 for those age 50 and above in 2006. If you have a Roth IRA, or plan to open one, you can still contribute the maximum allowable to that account in addition to your Roth 401(k) contributions.
•If your company provides a matching contribution, it will be pretax money and will go only into the regular 401(k) account.
•The Roth 401(k) is open to all employees who qualify for the regular 401(k). This is a boon to higher-paid employees who may be excluded from having a Roth IRA account because of its income limitations.
•Contributions are irrevocable. Once the money goes into the account, it falls under all of the IRS rules and penalties for 401(k) accounts; you can't change your mind and have it switched over to your regular 401(k).
• Money can be withdrawn tax- and penalty-free as long as you're at least age 59½ and have held the account for at least five years.
• The Roth 401(k) has the same distribution requirements as the 401(k). You'll need to begin taking minimum distributions by the time you reach age 70½. This contrasts with the Roth IRA, which has no distribution requirements.
• You can roll over your Roth 401(k) contributions to a Roth IRA when you retire or if your employment is terminated.
New Roth 401(k), or stick with the familiar?
By Scott Burns | October 2, 2005
Q: My company will soon start offering a Roth 401(k) option. Can you advise when one should choose it over a regular 401(k) option? Do company matching contributions also go into the Roth 401(k) or do they go into a regular 401(k) when the participant goes into the Roth 401(k)? Can you provide hypothetical examples that clearly show when each option is appropriate for an investor?
K.D., Irving, Texas
A: The Roth 401(k) option will be available Jan. 1, 2006, from those companies that choose to add it to their benefits. At the moment it isn't clear how many will be adding Roth 401(k) plans, because they will raise questions that most HR departments don't have the tools to answer. Here is what we know for certain:
[*]A Roth 401(k) plan will have the same contribution limits as a traditional 401(k) plan: $16,000 a year for those under 50, up to $20,000 when the 50 and over ''catch-up" provision is added.
[*]The difference between plans is that Roth 401(k) contributions will be after-tax contributions. In effect, employees will be able to stash more money in a Roth 401(k) than a traditional 401(k) because they'll have already paid taxes on their Roth 401(k) contributions.
[*]A Roth 401(k) plan won't have the income limitation of a Roth IRA. Many high-income workers and dual-income couples who can't contribute to a Roth IRA will be able to participate in Roth 401(k) plans.
[*]Your employer's contribution, by law, will continue to go into the traditional 401(k) plan. How much anyone will benefit from the new plans depends on future tax rates, individual earnings, and whether you are married or single. A company that employs a large proportion of relatively low-wage but older workers who happen to be single, for instance, might not be providing much of a benefit because its workforce will be in a low tax bracket while working and in retirement.
A company that employs a large proportion of relatively high-income younger workers who are part of dual-income households, however, would be helping its workforce with a tool that may reduce future taxation in general and the taxation of Social Security benefits in particular.
Does anyone know when/if a ROTH 401(K) type TSP option will exist for those in the military?
Information about the Roth 401(K) which starts for non-governmental civilians in January 2006...
•Employees will be able to contribute after-tax dollars to the Roth 401(k). The money will be held in a separate account from contributions to your regular 401(k). You decide what percentage of your retirement plan contributions go to either account.
•You'll be able to make the maximum contribution allowable under 401(k) rules. The 2006 401(k) contribution limits allow employees less than age 50 to sock away up to $15,000 -- $20,000 for employees age 50 or older.
•For those who want to save after-tax money, this is a much quicker route than saving in the Roth IRA, which has contribution limits of $4,000 for those less than age 50 and $5,000 for those age 50 and above in 2006. If you have a Roth IRA, or plan to open one, you can still contribute the maximum allowable to that account in addition to your Roth 401(k) contributions.
•If your company provides a matching contribution, it will be pretax money and will go only into the regular 401(k) account.
•The Roth 401(k) is open to all employees who qualify for the regular 401(k). This is a boon to higher-paid employees who may be excluded from having a Roth IRA account because of its income limitations.
•Contributions are irrevocable. Once the money goes into the account, it falls under all of the IRS rules and penalties for 401(k) accounts; you can't change your mind and have it switched over to your regular 401(k).
• Money can be withdrawn tax- and penalty-free as long as you're at least age 59½ and have held the account for at least five years.
• The Roth 401(k) has the same distribution requirements as the 401(k). You'll need to begin taking minimum distributions by the time you reach age 70½. This contrasts with the Roth IRA, which has no distribution requirements.
• You can roll over your Roth 401(k) contributions to a Roth IRA when you retire or if your employment is terminated.
New Roth 401(k), or stick with the familiar?
By Scott Burns | October 2, 2005
Q: My company will soon start offering a Roth 401(k) option. Can you advise when one should choose it over a regular 401(k) option? Do company matching contributions also go into the Roth 401(k) or do they go into a regular 401(k) when the participant goes into the Roth 401(k)? Can you provide hypothetical examples that clearly show when each option is appropriate for an investor?
K.D., Irving, Texas
A: The Roth 401(k) option will be available Jan. 1, 2006, from those companies that choose to add it to their benefits. At the moment it isn't clear how many will be adding Roth 401(k) plans, because they will raise questions that most HR departments don't have the tools to answer. Here is what we know for certain:
[*]A Roth 401(k) plan will have the same contribution limits as a traditional 401(k) plan: $16,000 a year for those under 50, up to $20,000 when the 50 and over ''catch-up" provision is added.
[*]The difference between plans is that Roth 401(k) contributions will be after-tax contributions. In effect, employees will be able to stash more money in a Roth 401(k) than a traditional 401(k) because they'll have already paid taxes on their Roth 401(k) contributions.
[*]A Roth 401(k) plan won't have the income limitation of a Roth IRA. Many high-income workers and dual-income couples who can't contribute to a Roth IRA will be able to participate in Roth 401(k) plans.
[*]Your employer's contribution, by law, will continue to go into the traditional 401(k) plan. How much anyone will benefit from the new plans depends on future tax rates, individual earnings, and whether you are married or single. A company that employs a large proportion of relatively low-wage but older workers who happen to be single, for instance, might not be providing much of a benefit because its workforce will be in a low tax bracket while working and in retirement.
A company that employs a large proportion of relatively high-income younger workers who are part of dual-income households, however, would be helping its workforce with a tool that may reduce future taxation in general and the taxation of Social Security benefits in particular.
