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| Roth 401(k) |
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A new employer-sponsored investment savings account that is funded with after-tax money. After the investor reaches age 59.5, withdrawals of any money from the account (including investment gains) are tax-free. Unlike the Roth IRA, the Roth 401(k) has no income limitations for those investors who want to participate - anyone, no matter what his/her income, is allowed to invest up to the contribution limit into the plan.
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This type of investment account is well-suited to people who think they will be in a higher tax bracket in retirement than they are now. The traditional 401(k) plan is funded with pre-tax money, which increases the amount invested in the account; however, all withdrawals are taxed. As for the Roth IRA, which is also an after-tax program, it restricts investors with high income from participating, but the Roth 401(k) has no such restriction.
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