New Tax FREE retirement with a  Roth 401k plan starts January 1, 2006

Employers who offer 401k or 403(b) plans can start to offer their employees a Roth version of their plans on January 1, 2006.

With a Roth 401k account, you forgo a tax savings today, but the money invested grows tax-free - provided you're at least 59 1/2 and the Roth 401k account has been open for at least five years before any money is withdrawn. 

For example, if the parents of a newborn opened a Roth 401k  with $2000 and the Roth 401k received 10% interest, the child would be a millionaire at 65 years of age.

Keep in mind that these Roth 401k accounts contradict the basic tax philosophy since they force you to forgo a tax savings today for tax saving in the future. 

So, now's the time to ask your employer's benefits department whether they have started a Roth 401k.  Don't be surprised if your employer balks.  The Roth 401k s are scheduled to sunset on December 31, 2010.

Who Should  Start A Roth 401k?

1.   You're relatively young and plan to keep the money invested for a long time.

2.   You're in a low tax bracket today, or feel that tax rates will be higher in the future.

3.   You've always wanted to contribute to a Roth IRA, but your income has consistently been too high for you to put money into one.

4.   You want your heirs to keep as much of the money they inherit from you as possible, since they won't owe income taxes on distributions received from Roth 401k accounts. (However, the amount they inherit from you might be less since you've paid higher taxes in years you contributed to a Roth 401k).

You don't rely on the tax savings realized on your current contributions to your Roth 401k or 403b account to meet your household budget.

 

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