Free Articles - Table of Contents
Business Matters
Deducting the Business Use of Your Home
Should You Incorporate Your Business
Human Resources
ADA Protects Employees with Cancer
Update Social Security Number Verification for Employers
The Dangers of Employee Internet Use
The Hazards of Resume Screening
Real Estate
Landlord/Tenant-Insurer May Sue for Fire Damage
Miscellaneous
Good News For Those Who Struggle With Legal Risk
Partnerships And Limited Liability Companies
A Few Well Chosen Words About Contracts
New 401(K) Investment Option
As of January 1, 2006, employers are able to offer a new retirement savings option, the Roth 401(k). The new account allows the features of a Roth IRA to be incorporated into the setting of a 401(k) account, but without the income restrictions that limit a Roth IRA. Contributions will be made with after-tax dollars, but the account will grow tax‑free, and withdrawals taken in retirement will also be tax‑free, assuming an individual is at least 59‑1/2 years old and has held the account for at least 5 years.
Roth 401(k) accounts will be subject to the same contribution limits as regular 401(k)s. In 2006, this means a contribution limit of $15,000, or $20,000 for individuals 50 and over. The contribution limits apply to regular and Roth 401(k) plans combined, so, for example, an individual could not put $15,000 in a regular 401(k) and $15,000 in a Roth 401(k). Still, the opportunity to put more money into a retirement account that will have tax‑free withdrawals will be enhanced, given that in 2006 the contribution limits for a regular Roth IRA will be $4,000, or $5,000 for those 50 or older. If an employer matches the employee’s contributions to a Roth 401(k), the matches will be made with pre-tax dollars in a regular 401(k) account that will be taxed as ordinary income at withdrawal.
Although it is only now becoming available, the Roth 401(k) originated in a big piece of tax legislation that was enacted in 2001, with a sunset provision to take effect in 2010. Thus, it remains to be seen whether over the long run the Roth 401(k) will be seen as an option that was available in a small window of time, or a permanent fixture in retirement planning. Contact your tax advisor to find out which retirement savings options are right for your Company.