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Who should consider saving in a Roth 401(k)?

Roth 401(k) is not just for highly paid individuals. A Roth 401(k) plan can benefit people of all income levels. You may recognize yourself in one of these scenarios:

  • Someone who expects tax rates to rise in the future
  • Younger workers and lower income taxpayers – If you expect to be in a higher tax bracket in the future, Roth contributions may be advantageous since you can pay taxes now on your contributions at a lower percentage. Also, the further you are from retirement, the longer your tax-free earnings can grow.
  • High-income earners – If your income exceeds the Roth IRA Adjusted Growth Income (AGI) limits, you may find the opportunity to make Roth contributions to your 401(k) plan attractive.
  • Participants seeking to lower taxes on Social Security benefits – Qualified withdrawals are excluded from taxable income when calculating taxes on Social Security benefits. This may be of interest if you are at least five years away from retirement.
  • Participants seeking estate-planning opportunities – You can roll over a Roth 401(k) to a Roth IRA and avoid the legal requirement to take withdrawals at age 70 ½. This may appeal to business owners and other individuals with substantial savings.

Roth contributions are irrevocable. Once the money goes into a Roth 401(k) account, contributions can’t be re-categorized as pre-tax contributions.

You can roll over your Roth 401(k) contributions to a Roth IRA when you retire or if the plan is terminated.

Please consult your financial advisor to find out if Roth 401(k) will help you to meet your retirement objectives.

Ubiquity Retirement + Savings cannot advise you as to whether or not a Roth 401(k) is appropriate for your personal circumstances.

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