The Ultimate Retiment Savings Incentive - No Taxes with a 401k Roth
Of course it's easy to decide in the heat of a New Year's resolution that you need to begin saving for your retirement, starting when the ball in Times Square drops on the TV. But it is difficult just to get the basics right. Setting money aside is hard, and with the way the economy is, investing it reasonably logically is even harder. There are no end of investment opportunities all brightly advertised, that you would need a PhD to sort through. Well, to take away that confusion, or perhaps add to it, depending on how you see it, is the 401k Roth plan, now all of four years old. If you fall into one of those high income brackets up there in the stratosphere, a 401k Roth is for you. It allows you to shore up your savings; and it does not charge you taxes.
The regular 401(k) we all know, basically puts off taxing you on your retirement savings until you are ready to retire. The 401k Roth though, taxes you right then and there as you continue to contribute to it. So what you see before you, is what you get when you retire. The 401k Roth was George Bush's plan in his first term. So it's not really new, and enough information has filtered in into society about it so far. But you need to understand that companies just don't want the hassle of providing their workers a new plan, and so don't offer it. In most cases, they never offer it unless employees come together, and actually put down a proper request for it. And so, the 401k Roth has always remained out of the mainstream.
So who benefits from the new 401k Roth? Well, since you ask, it is the upwardly mobile, the bigger earners among us. They'll just end up saving more, putting more away for their retirement than in the regular Roth plan. Why would one do that, you say? Let's say that you have an enviable salary, but you still like to put away no more than $15,000 a year. If you happen to exist in the 35% tax bracket, this would actually be the same thing as putting away $23,000 under the old plan. And the $15,000 you put into your Roth, will not somehow will look 35% thinner, thanks to taxes. It is tax-free. Taxes just kill all the fun in an ordinary 401(k) - you look at the full sum, and you believe that that is what your retirement prize is worth. But it could be worth anything below that - seeing as how you can't really tell what the taxes on it are going to be. And you do know that taxation experts believe that taxes would rise quite steeply in the future, no matter what the Republicans say, don't you?
The reason the 401k Roth is big news is, that the main Roth IRA is not for high-income types - people who make more than $110,000. The 401k Roth has no such limits. And it allows you to set aside $15,000 in the year, as opposed to $5000 for the old plan. If you make a major income, is this ever good news for you. But if you're not one of those lucky people, the 401k Roth doesn't really help. After seeing slow acceptance in the beginning, things are really starting to take off now. If employers would ease up on resisting this, things could be well underway.
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