What you need to know about a Roth 401(k)

October 09, 2019

You're familiar with a 401(k) and a Roth IRA, but what about a Roth 401(k)? It's a retirement account that includes features of both of those accounts. Here's what you need to know about a Roth 401(k) to help you decide whether it's a good option for you.

A Roth 401(k) functions a lot like a traditional 401(k). The big difference lies in the way it is taxed. Contributions to a Roth 401(k) are taxed now, not later, unlike a regular 401(k). There are no income limits to open one, and it is only available through an employer. If your company offers both traditional and Roth 401(k)s, you can put money in both at the same time. You can decide on the amount you'd like deducted from your paycheck to go into either or both pre and post tax parts.

Here are a few points to consider when looking into a Roth 401(k):

  • Is an employer match available?

Yes, but employer contributions go into a pre-tax account, not into the post-tax Roth. So, if you receive any matching dollars, you will also have a regular 401(k). Those earnings are taxed later.

  • How much can I contribute?

You can top out Roth 401(k) contributions at $19,000 per year (not including employer match). If you're 50 or older, you're allowed to put in an extra $6,000, for $25,000 total per year.

  • When can I withdraw my savings?

The minimum age for withdrawal is 59 1/2, as long as you've had the account for at least five years. Funds may also be taken due to disability or death. The longest you can wait to withdraw money is until you're 70 1/2.

Other factors that will make a difference in your decision include your current income, age and what tax bracket you expect to be in when you retire.

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