Roth 401K – Who Can Benefit From it Most?

Mika Hamilton

The Roth 401k is a system introduced by the Govt. of the USA to help employees to save money to be used once they retire. This system yields some great tax benefits to the investors concerned. The biggest incentive to start a Roth 410k account is the tax incentives it gives its account holders where their savings are not taxed unless they take the money out early. What happens in the case of the Roth 401k plan is that earners, having made their tax contributions to the govt., invest the balance in their Roth 401k account so that when they retire, they can withdraw the money without being subject to any tax being deducted at that time.

This is extremely beneficial for those earners who assume in being on a higher level of tax cuts in their senior years when they are closer to getting their money out. For those who are on a higher level of income and expect to be in lower tax level at the time they retire, should not be a part of the Roth 401k, which will not be of any advantage to them. Another disadvantage is that there is a limit to the money that can be transferred from a Roth 401k account to a traditional 401k account. Many companies are also not very interested in implementing both plans employees in view of the extra work they will have to get involved in.

Unlike in the traditional Roth IRA, those who invest in the Roth 401k plan does not have any limits for anyone who wants to participate, and anyone, irrespective of his or her income is able to contribute up to the limit of the plan. This limit is determined by the type of business he is involved in and will be set at a certain level annually. The new regulation is that while a sole owner of a business can invest a maximum of $49,000 of his earnings, anyone who is 50 years or older can contribute up to $54,000. This is why the Roth 401k is very attractive to the independent entrepreneur and also why it has only a limited number of account holders participating in it.

If you are not really sure which Roth investment you should make, its better to get advice from a stock broker or financial advisor who is specialized in Roth IRA to help you out to find a plan that would suit your specific requirements. No matter which particular investment plan you hope to join, the limit of your 401k contribution will apply to both systems whether it's the new Roth 401k plan or the traditional Roth IRA. You can however, contribute to both systems and decide on your upper limits since going over the top can result in heavy taxes and tax penalties which would be counter productive in the long term.

A well experienced financial advisor who knows all the ins and outs of the Roth 401k and its contribution limits will help you to find other plans of investment that might even project better returns as well as make sure your investments are safe and sound until you need to make use of them when you retire.

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