Jay Hauke.Draftline Enrollment - Web Book - 2025 - Flipbook - Page 9
THE ROTH 401(K): AN INTRODUCTION
Comparing the Roth 401(k) to the Roth IRA
ROTH 401(k) & 403(b)
ROTH IRA
2025 Contribution
Limits
$23,500 ($31,000 if age
50 or older)
Maximum income
Limits
No
$7,000 ($8,000 if age 50
or older)
Yes (currently $150,000
for individuals and
$236,000 for joint tax filers)
Tax Status of
Contributions
Taxable in year
contributed
Taxable in year
contributed
.
Tax Status of
Distributions After
Age 59 1/2
Tax free and penalty free if
account held for five or
more years
Tax free and penalty free if
account held for five or
more years
.
Hardship Withdrawals
Yes, but not eligible for
special tax treatment
No, but can withdraw
subject to tax rules
.
Subject to Required
Minimum Distribution
(RMD) Rules
Yes, but money in account
can be rolled over into a
Roth IRA to avoid taking
RMD
No, but can withdraw
subject to tax rules
.
.
.
Comparison with Roth IRAs
The tax treatment of the Roth 401(k) plan is basically the same as that of the Roth IRA. Both
accept contributions made with after-tax dollars and both allow tax-free withdrawals
beginning at age 59 ½, provided contributions began at least five years earlier.
But there are significant differences to consider. Some aspects of the Roth 401(k) plan are
more generous and some are less generous than those available in a Roth IRA. For
example, unlike a Roth IRA, the Roth 401(k) plan has no income restrictions. As a result, the
Roth 401(k) may be attractive for higherpaid employees who have been unable to
contribute to a Roth IRA, and the annual contribution limit for the new Roth 401(k) is much
higher than the Roth IRA ($7,000 for 2025 plus $1,000 catch-up contribution for individuals
age 50 and older).
On the other hand, the Roth 401(k) has one drawback compared with the Roth IRA among
people who do not want to be required to take money out of their account. Unlike the Roth
IRA, which has no minimum distribution requirements, minimum distributions from a Roth
401(k) generally must begin in the year after the participant turns age 73. However, the
assets in a Roth 401(k) can be rolled into a Roth IRA if the employee retires or leaves the
company, which would eliminate this requirement.
Planning Pointers
Given the rules, the Roth 401(k) could potentially be appealing to workers who expect to be
in a higher tax bracket after retirement or who have many years to continue saving before
retirement. It may also be of interest to higher-paid workers who have been precluded from
contributing to the Roth IRA because of income restrictions. The Roth option may not be as
attractive to someone nearing retirement and expecting to need to tap his or her nest egg
soon.
Without doubt, there’s much to weigh in determining whether a Roth 401(k) may be right
in your situation, and you may welcome the advice of a trusted financial professional as you
assess this option in relation to your retirement plan.
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