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A Roth 401(k) is a form of a retirement savings program that combines aspects of Roth Individual Retirement Accounts with standard 401(k) programs (IRAs). There is no tax deduction for contributions made to a Roth 401(k) because they are made using after-tax money.Â
The money in the account, however, can grow tax-free and, if certain requirements are met, can be taken tax-free in retirement.
Tax diversification in retirement is one of the benefits of a Roth 401(k). Withdrawals can be utilized to augment other retirement income sources that could be taxed because they are tax-free. Furthermore, unlike Roth IRAs, which have contribution caps for those with higher incomes, Roth 401(k) plans do not have income restrictions on contributions.
To the extent permitted by the Internal Revenue Service's overall contribution restrictions, employees who take part in a 401(k) plan provided by their employer may choose to make Roth contributions, standard pre-tax contributions, or a combination of both (IRS). Although these contributions are made with pre-tax money and would be taxed when withdrawn in retirement, the employer may also give matching contributions to the Roth 401(k).
Tax diversification in retirement is one of the benefits of a Roth 401(k). Withdrawals can be utilized to augment other retirement income sources that could be taxed because they are tax-free. Furthermore, unlike Roth IRAs, which have contribution caps for those with higher incomes, Roth 401(k) plans do not have income restrictions on contributions.
To the extent permitted by the Internal Revenue Service's overall contribution restrictions, employees who take part in a 401(k) plan provided by their employer may choose to make Roth contributions, standard pre-tax contributions, or a combination of both (IRS). Although these contributions are made with pre-tax money and would be taxed when withdrawn in retirement, the employer may also give matching contributions to the Roth 401(k).
