401K Roth IRA

The 401K Roth IRA combines some of the best aspects of both the 401K and the Roth IRA.  Employees can decide to contribute funds on a post-tax elective deferral basis, in addition to, or instead of, pre-tax elective deferrals under their traditional 401k plans.

For traditional 401K plans as well as Roth 401K plans, an individual under the age of 50 cannot contribute more than $16,500 annually to their 401K. For people over 50, you can contribute an extra $5500.  The difference between a Roth 401K and a traditional 401K is that the Roth version is funded with after-tax dollars while the traditional 401K is funded with pre-tax dollars. After-tax dollars represent money for which taxes are paid in the current year, and pre tax dollars are those that do not represent federal taxable income in the current year.

There are several things to think about before investing your money in this manner.  First of all, Roth contributions are irrevocable, such that once money is invested into a Roth 401K account; it cannot be moved to a regular 401K account. It is also the employer’s decision if it will allow access to the Roth. These are just two things to think about when making the decision on how to best invest for your retirement.