Do you have a Roth Option in your employer plan?
Many employers now offer a Roth Option in their savings plans (i.e., 401k, TSP, etc):
1. Exactly what is the Roth option? The Roth option allows you to contribute after-tax dollars towards your plan. You won’t be getting the immediate tax deduction of pre-tax dollars that you do with the traditional 401k, but any growth from Roth dollars is tax free.
2. You can invest in both plans, but the combined contributions cannot exceed the limit of $17,500 (or $23,000 for those over 50 years of age).
3. Participants will still receive matching; however, the matching will be done on the traditional side of your plan. For example, if an employee contributes 5% of post-tax dollars to the Roth 401k, that employee will receive the matching 5% on the traditional tax deferred side.
4. Funds already contributed into your plan typically cannot be converted to the Roth side, but check with your plan administrator. Remember – taxes are due on any dollar amount converted.
5. Should I opt for the Roth option? That is a personal decision and it’s recommended each individual consult with a financial advisor. The ability to contribute 5% into the Roth and have the matching occur on the traditional side gives employees an easy way to participate in both worlds. With the uncertainty of future tax rates, it’s sound to prepare for both sides of the spectrum.
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