Roth 401(k)
Candlefocus EditorAn important difference between the Roth 401(k) plan and the traditional 401(k) plan is that contributions made to Roth 401(k) are taxed as soon as they are made. However, once the funds have been held for five or more years, all earnings and withdrawals are tax-free upon retirement. That being said, the same restrictions apply to Roth 401(k) withdrawals regarding the 10% early withdrawal penalty before age 59 ½ and the required minimum distributions (RMDs) of which the IRS mandates that no later than April 1 of the year following the year in which the participant turns 72 (73 beginning January 1, 2023).
Contributions to Roth 401(k) plans are also subject to annual limits that are adjusted for inflation each year and determined by the Internal Revenue Service (IRS) every year. Therefore, depending on the year, you can take advantage of the increased contribution limits if you choose to do so.
Overall, Roth 401(k) plans are a great way to save for retirement and potentially save significant amounts of taxes. There are many options when it comes to retirement savings, and everyone should look at all of them and decide which fits their financial goals and needs. The Roth 401(k) plan is a great option for those who are planning for retirement and who have the income and resources to make the most out of their retirement contributions.