New Retirement Savings Plan - Roth 401(k) Coming Into Effect
The Retirement savings plan, Roth 401(k) introduced by the Economic Growth and Tax Relief Reconciliation Act, 2001 will come into force from January 2006. Unlike a traditional 401(k) Retirement Plan, a Roth 401k plan applies to all employees but the latter requires the contributions to the plan account with after-tax dollars while a 401k plan allows for contributions with pre-tax dollars.
You may not be allowed to contribute to a Roth IRA if your income level is higher but you can certainly qualify for a Roth 401(k) plan, as there are no income specifications here. In addition, you can contribute up to $15,000 for 2006, as in a 401(k) plan and the limit reaches $20,000 for individuals turning 50 years of age or older by the end of the year. The increase in the limit is termed as the catch-up contribution which was a provision of the Economic Growth and Tax Relief Reconciliation Act of 2001.
As far as the employers' contributions are concerned, these amounts will be matching the contributions of employees but with pre-tax dollars. The employer contribution will be rolled up in a separate account and funds withdrawn from that account will be subjected to taxes on withdrawal.
The Roth 401(k) plan may not allow you to get the benefit of the contribution from pre-tax dollars but it allows you to withdraw tax-free money after retirement. You can avoid paying income tax on the cash you withdraw from your plan account after retirement. But your age should be 59 and 1/2 years and you should have held the plan account for more than 5 years or more. In case you withdraw money before retirement, you will have to pay taxes (almost 35% of the contribution) and a 10% penalty.
A Roth 401(k) plan can be helpful as it prevents you from tax payments on withdrawal after retirement. But this will help you only if your tax bracket after retirement is same or higher than what it is now. If your current tax bracket is low, then you can contribute more towards the Roth 401(k) plan account. Your savings thus increase and you get to withdraw a higher amount at retirement. You can also roll over your Roth 401(k) balance into a Roth IRA whenever you leave your employment.
You can contribute a part of the allowed limit, which is $15,000 to a Roth 401(k) plan account and the rest to a 401(k) account, and thereby reduce the tax payments. This is because a Roth 401(k) allows you to contribute after-tax dollars whereas a 401(k) plan account allows for pre-tax contributions.
With a Roth 401(k) plan contribution, you don't take home several dollars since you are allowed to accumulate after-tax dollars into the plan account. But then you don't have to pay taxes on the amounts taken out after retirement and this helps you especially if the tax bracket is higher at that time.
Lance Williams is working as a content developer for : www.mortgagefit.com. He specializes in mortgage and real estate concepts.
Article Source: http://www.ArticleGeek.com - Free Website Content
More Resources
Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exiting
More Investing Information:
Related Articles
How Can You Learn About Today's Market Trends?
Stock market trading is the exchange of trade certificates that vouch for the partial ownership of a particular company for a set price. Through stock trading, companies are able to raise funds that they use for various operational aspects.
Stock Scalping 101
Stock scalping refers to the illegal and deceptive practice of recommending that others purchase a security while secretly selling the same security. In recent years, the SEC and Justice Department have brought an increasing number of cases involving securities violations that involve scalping activity.
Rule 144 & the Adequate Current Public Information Standard
Rule 144(c) of the Securities Act of 1933, as amended (the "Securities Act") requires that stockholders of public companies relying upon the Rule to satisfy the adequate current public information requirement. The requirements depend upon whether the issuer is a reporting or non-reporting company.
How To Profit Using Technical Indicators
You can learn to profit from options using a few key techinical indicators. These simple tools will enable you to profit from options in any market condition.
Future Assist - Self Managed Superannuation set up and Investing
Future Assist are self managed superannutaion set up and investing specialists. Located in Sydney, Brisbane, Gold Coast and Melbourne.
Electronic Currency Exchange
One of the easiest ways to make money online today is to learn e-currency trading. Many people have spent countless hours looking for the perfect program that will make them a millionaire over night. The truth is, these programs do not exist. Electronic currency exchange allows people to make a long-term investment that can yield substantial profits in years to come.
Income Investing: Selecting the Right Stuff
You don't have to be a professional Investment Manager to professionally manage your investment portfolio, but you do need to have a long term plan and know something about Asset Allocation... a portfolio organization tool that is often misunderstood and almost always improperly used within the financial community. Remember, your unhappiness is Wall Street's most coveted asset. Don't humor them.
Investment Advisors 101 - Ask Some Questions
Why do people become Investment Advisors? Call me skeptical, but I don't think it's the ethereal glow they feel after implementing your new Financial Plan. Actually (once you appreciate that IAs are the primary delivery system for Wall Street's huge collection of one-size-fits-all products), you'll realize that it's the money.
New Retirement Savings Plan - Roth 401(k) Coming Into Effect
Unlike a traditional 401(k) Retirement Plan, a Roth 401k plan applies to all employees but the latter requires the contributions to the plan account with after-tax dollars while a 401k plan allows for contributions with pre-tax dollars.
The 40 Year Plan Over
What is truly driving the market of self directed IRA retirement investing? Is it the buff real estate market? Or are there other economic factors?
10 Essential Trading Elements
While most beginning traders focus their study on when to enter a position, traders who make money know that the money goes to those who do a lot of other things right. Here are ten things that every trader must know:
How to Begin Trading Commodities Futures
This instructional guide should help you in your first steps when it comes to futures trading. It might not give you all the answers, but it contains the most important elements that should help before you trade in these instruments.
Secure Your Retirement with a Rollover IRA
Switching your job? Retiring? Congratulations! A window of opportunity opens for you with the Rollover Individual Retirement Account or Rollover IRA.
Annuity Quotes
Choose an annuity quote that comes from the right source. Ensure that your agent is licensed, knowledgeable, reputable and experienced. It is always best to go for an agent that comes as a recommended source.
Purpose of NTL
NTL clarifies the method of Gulf of Mexico OCS Region (GOMR) regarding the implementation of requirements for general lease surety bonds that are present in 30 CFR 256, Subpart I.