The New Roth 401(k): Tax Free Retirement Savings

New Employee Retirement Account Similar to the Roth IRA

Working Boomers can take advantage of the newest retirement savings option - the Roth 401(k) - that employers can offer. Rolled out at the beginning of 2006, the plan blends features of the traditional 401(k) with those of the Roth IRA. Roth 401 (k) contributions are made with after-tax dollars. Although savers won’t get an upfront tax deduction, the account grows tax-free and withdrawals taken during retirement won’t be subject to income tax, provided you're at least 59 1/2 and you've held the account for five years or more.

Before, high-income earners were shut out of the Roth IRA, but Roth 401(k)s have no income restrictions. The decision to fully fund a Roth 401(k) can’t be made in a snap because there are some catches. For example, you can’t max out both a 401(k) and a Roth 401 (k), and there are some questions about future tax consequences to ponder, as well.

Keep in mind also that a self-directed Roth IRA can be used to purchase Santa Clarita real estate, as long as it is purchased for investment purposes rather than for personal use.

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Linda Slocum
HoneyStartPacking.com

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