Roth 401(k)

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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.

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