Roth 401(k)

Loading the player...

What is a 'Roth 401(k)'

A Roth 401(k) is an 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 or her income, is allowed to invest up to the contribution limit into the plan.

BREAKING DOWN 'Roth 401(k)'

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 pretax 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.

RELATED TERMS
  1. Roth Option

    An option available within some employer-sponsored qualified ...
  2. Roth IRA

    An individual retirement plan that bears many similarities to ...
  3. Backdoor Roth IRA

    A method that taxpayers can use to place retirement savings in ...
  4. Designated Roth Account

    An individual retirement plan in which employees can have all ...
  5. Roth IRA Conversion

    A reportable movement of assets from a Traditional, SEP or SIMPLE ...
  6. Qualified Distribution

    Distributions made from a Roth IRA that are tax and penalty free. ...
Related Articles
  1. Retirement

    A Closer Look At The Roth 401(k)

    Learn about the benefits and drawbacks of this new investment account and see if it's right for you.
  2. Retirement

    Know The Rules For Roth 401(k) Rollovers

    You can roll the funds from a Roth 401(k) into an IRA, or you may be able to roll your old Roth 401(k) into one from a new employer.
  3. Retirement

    Why Millennial Savers Should Choose a Roth 401(k)

    A 401(k) is a valuable tool for building retirement wealth, but for Millennials the Roth option may make more sense than going the traditional route.
  4. Retirement

    Roth 401(k) Vs. Roth IRA: Which One Is Better?

    It all depends on your age, your income - and your plans for your retirement nest egg.
  5. Financial Advisors

    Why Some Advisors are Shy to Convert Roth IRAs

    Potential upcoming changes from the Obama Administration could hit rollovers from traditional to Roth IRAs, and that has advisors reluctant to convert.
  6. Retirement

    Comparing Contributions: Roth 401(k) vs. Roth IRA

    Which one works better for you? Read on.
  7. Retirement

    401(k) Plans: Roth or Regular?

    How to decide which type of 401(k) retirement savings plan makes the most sense for you. Or should you hedge your bets and sign up for both?
  8. Taxes

    Tax Tips on Roth and Regular 401(k)s

    There are many ways to reduce your tax burden when saving for retirement. From converting to a Roth 401(k) to sticking with a traditional 401(k), here's how.
  9. Retirement

    How Yearly Taxes on 401(k) Accounts Work

    Learn how your contributions to traditional or Roth 401(k) accounts are taxed, either in the year of contributions or at withdrawal, depending on the type.
  10. Retirement

    6 Reasons Not to Recharacterize Your Roth IRA

    If you're thinking of recharacterizing your Roth IRA into a traditional IRA account, here are six compelling reasons why you should reconsider.
RELATED FAQS
  1. What are the main differences between a Roth 401(k) and a Roth IRA?

    Learn the difference between a Roth 401(k) and Roth IRA. Each offers the benefit of many years of tax-free compounding, a ... Read Answer >>
  2. What are the tax advantages of a Roth 401(k) over an IRA or traditional 401(k)?

    Discover how Roth 401(k) accounts are taxed in a similar manner as Roth IRAs and have several potential advantages over traditional ... Read Answer >>
  3. What's the difference between a 401(k) and a Roth IRA?

    Discover that a 401(k) and a Roth IRA differ primarily on tax treatment, investment options, employer involvement, and limitations ... Read Answer >>
  4. What are the Roth 401(k) contribution limits?

    Understand the current contribution limits for designated Roth 401(k) accounts, including additional allowable payments for ... Read Answer >>
  5. How is a Roth 401(k) taxed?

    Learn about the tax advantages of using a Roth 401(k), with tax-free earnings and no required minimum distributions, if this ... Read Answer >>
  6. Are Roth 401(k) plans matched by employers?

    Discover the difference between a Roth 401(k) and a traditional 401(k), and explore the role of an employer contribution ... Read Answer >>
Hot Definitions
  1. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  3. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center