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 The Motley Fool has a disclosure policy.

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