Recs

15

I Love Roth 401(k)s

If there's such a thing as a valentine delivery service to that great retirement village in the sky, send your heart-covered cards to the late Delaware senator by the name of Roth, who lent his moniker to some of the Fool's favorite retirement accounts.

Never heard of the old gent, you say? If you've ever looked into opening an individual retirement account, you've no doubt discovered the Roth IRA. Now there's a new option for its devoted fans, the Roth 401(k).

Roth accounts capitalize on one of the informal laws of life: Either you pay now, or you pay later. With many retirement accounts, the Internal Revenue Service leaves you alone, letting you amass a big pile of cash with the understanding that they'll eventually come calling -- the "pay later" option.

With Roth accounts, you pay now. In exchange, the tax collectors never come knocking at your door again -- assuming you follow all the rules.

I love the Roth 401(k) because it gives all of us working stiffs the same flexibility and retirement choices at work that we get when we save on our own. Here are a few more of the Roth 401(k)'s heartwarming features -- they might cause you to fall in love, too:

  • If you save in a Roth IRA, you're limited to the annual contribution limits of all IRAs. That's $4,000 for most people this year. If you save through a Roth 401(k), your contribution limit can be as high as $15,500.

  • Roth accounts can mean tax savings for anyone who knows their tax rate will remain the same or go up in retirement. No earthly idea what your tax rate might do? A Roth account can help you hedge your bets in retirement by spreading your savings between taxable and non-taxable accounts. You can even do both -- put a portion of your savings in a regular 401(k) and another portion in a Roth 401(k).

  • You can roll your Roth 401(k) directly into a Roth IRA if you leave your job for greener pastures. That means you'll avoid required minimum distributions in retirement. You'll also get immediate access to your original contributions (though not necessarily your earnings).

The most important feature of a Roth 401(k) may be the automatic savings it provides. With 401(k) accounts, the money disappears from your paycheck faster than Valentine's Day chocolates left on the office conference table. It's almost like sending a special valentine to yourself.

What's sending Fools' hearts aflutter? Go back to our intro page to see what else we have a crush on.

Fool contributor Mary Dalrymple welcomes your feedback at marydfool@gmail.com. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 521588, ~/Articles/ArticleHandler.aspx, 11/24/2014 8:52:21 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 17,817.90 7.84 0.04%
S&P 500 2,069.41 5.91 0.29%
NASD 4,754.89 41.92 0.89%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes


Advertisement