What is a Roth 401(k) and is it a new type of plan?
A Roth 401(k) is a hybrid between a Roth IRA and a 401(k) plan that has been available to employers since January 2006. The plan combines features of Roth IRAs and traditional 401(k) plans, but differs in important aspects. A Roth 401(k) is similar to a Roth IRA in that it allows after-tax contributions to earn tax-free retirement income. However, a Roth 401(k) allows for sharply higher annual contribution amounts for the employee deferral election than a Roth IRA – up to $16,500 ($22,000 if age 50 or older) in the 2010 tax year versus just $5,000 for a Roth IRA.
A Roth 401(k) is a hybrid between a Roth IRA and a 401(k) plan that has been available to employers since January 2006. The plan combines features of Roth IRAs and traditional 401(k) plans, but differs in important aspects. A Roth 401(k) is similar to a Roth IRA in that it allows after-tax contributions to earn tax-free retirement income. However, a Roth 401(k) allows for sharply higher annual contribution amounts for the employee deferral election than a Roth IRA — up to $16,500 ($22,000 if age 50 or older) in the 2011 tax year versus just $5,000 for a Roth IRA.
