Roth 401(k) Plans

A new retirement account was signed into law on August 17, 2006. It is a component of a “regular” 401(k) Plan; however, the funding of a “Roth” 401(k) Plan is with after-tax dollars. This is similar to the Roth IRA but with higher funding limits and no limit on earnings to contribute. Money contributed to a Roth 401(k) Plan grows without tax and is distributed without tax. You have until April 15th of each year to make a contribution for the previous year. The funding limit for 2024 is $23,000, or $30,5000 if over the age of 50.

Ask yourself the following question: Will you grow more wealth funding a Roth 401(k) in a non-deductible manner where the money grows then comes out income tax-free, or will you grow more wealth income-tax deferring money into a traditional 401(k) where the money withdrawn is fully income taxable at your current income tax bracket?

The answer is… it depends. The real-world answer about Roth plans is that the vast majority of readers will in fact be better off using Roth Plans over traditional income tax-deferred plans.