The Roth 401 (k) is a type of retirement savings plan. It was authorized by the United States Congress under Internal Revenue Code, section 402A, and is a unique combination of Roth IRA features and traditional 401 (k) plans. Since 1 January 2006, US employers have been allowed to amend their 401 (k) plan documents to allow employees to choose the type of Roth IRA tax treatment for part or all of their pension contributions. The same legal change allows Roth IRA type contributions to a 403 (b) pension plan. Roth's pension plan provisions apply as a provision of the Economic Growth and Tax Reconciliation Act Relief 2001 (EGTRRA 2001).
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Paket 401 (k) dan Roth IRA tradisional
In the traditional 401 (k) plan, introduced by Congress in 1978, workers contributed pre-tax profits to their retirement plans, also called "elective suspension". That is, the employee elective deferral fund is set aside by the employer in a special account in which the funds are allowed to be invested in the various options available in the plan. The IRS sets limits on the amount of deferred funds in this way, and includes a "pursuit" provision intended to allow older workers to save for retirement to approach them. These limitations are adjusted annually to reflect changes in the cost of living due to inflation. For the fiscal year 2015, this limit is $ 18,000 for those under 50, and $ 24,000 for those aged 50 and older.
The entrepreneur may also add funds to the account by donating funds that match the basis of the fraction formula (for example, matching funds may be added at the 50% level of employee elective deferral), or on a certain percentage basis. Funds in the 401 (k) account grow on a deferred tax basis. When the account owner reaches the age of 59 1/2, he may start receiving "eligible distributions" of funds in the account; The distribution is then taxed at the usual rate of income tax. Exceptions exist to allow for the distribution of funds before 59 ½, such as "equal periodic payments", disability, and separation of services after the age of 55 years, as described under IRS Code section 72 (t).
Under the Roth IRA, first enacted in 1998, individuals, whether employees or entrepreneurs, voluntarily contribute post-tax funds to individual pension arrangements (IRAs). Unlike the 401 (k) plan, Roth's plan requires post-tax contributions, but allows for tax-free growth and distribution , provided that contributions have been invested for at least 5 years and The account owner has reached the age of 59à , ½. The contribution limit of Roth IRA is significantly lower than the 401 (k) contribution limit. For fiscal years 2016 and 2017, individuals may contribute no more than $ 5,500 per year to Roth IRA if they are under 50, and $ 6,500 if they are 50 or older. Additionally, IRA Roth's contribution limits are reduced for taxpayers with Adjusted Customized Adjusted Earnings (AGI modifications) greater than $ 117,000 ($ 184,000 for joint marriage proposal), gradually entirely for individuals with AGI modifications of $ 132,000 $ 194,000 for marriage filing jointly), for 2016. See the 401 (k) versus IRA matrix that compares different types of IRAs with various types of 401 (k) s. Maps Roth 401(k)
401 (k) packets
The Roth 401 (k) combines some of the most favorable aspects of both 401 (k) and Roth IRA. Under Roth 401 (k), employees may contribute funds on a post-tax elective base of suspension, in addition or in lieu of elective pre-tax suspensions under their traditional 401 (k) plan. A combined employment option deferred whether to a traditional 401 (k), a Roth 401 (k), or both can not exceed the IRS limit for traditional 401 (k) suspension. The employer companion fund is not included in the elective deferment cap but is considered for the maximum limit of section 415, ie $ 53,000 for 2015 and 2016, or $ 59,000 for those aged 50 and older. The higher section 415 limit also applies to post-tax contributions, which, depending on a certain 401 (k), can be converted to Roth 401 (k) later.
Employers are allowed to make an appropriate contribution to Roth's employee-designated contribution. However, employers' contributions can not receive Roth's tax treatment. Appropriate contributions made to the account of defined Roth contributions should be allocated to pre-tax accounts, as well as suitable contributions to the traditional elective contribution before tax. (Pub 4530)
In general, the difference between traditional Roth 401 (k) and 401 (k) is that revenue contributed to the Roth version may be taxed in the year earned, but the revenue contributed to the traditional version may be taxed in the year in which it is distributed from the account. In addition, income on the traditional version is taxable income in the year they are distributed, but income on the Roth version is never taxed.
There are restrictions on Roth's revenue maximization: typically, the distribution should be done at least 5 years after Roth's first contribution and after the recipient is 59 ½.
The Roth 401 (k) plan may be most beneficial for those who may choose Roth IRA, such as younger workers who are currently taxed in lower taxes but expect to be taxed in a higher group after reaching retirement age. High-income workers may prefer a traditional 401 (k) plan because they are currently taxed in the higher tax group but are expected to be taxed at a lower rate in retirement; also, those close to the IRA Roth revenue limit may prefer traditional 401 (k) because their pre-tax contribution decreases Adjusted Adjusted Adjusted Revenue (MAGI) and thereby increases the feasibility for other tax incentives (Roth IRA contributions, Child Tax Credit, withholding medical expenses, etc.). Another consideration for those currently in higher tax brackets is the future of the income tax rate in the US: if the income tax rate increases, current taxation would be desirable for a wider group). The Roth 401 (k) offers the advantage of a tax-exempt distribution but is not limited by the same income limits. For example, in fiscal year 2013, normal Roth IRA contributions are limited to $ 5,500 ($ 6,500 if age 50 or older); up to $ 17,500 may be contributed to Roth 401 (k) accounts in the absence of any other elective holds taken for the tax year, such as a traditional 401 (k) suspension.
The adoption of the Roth 401 (k) plan is relatively slow, partly because they require additional listing administration and salary processing. But some of the larger companies have now adopted the Roth 401 (k) plan, which is expected to spur their adoption by other companies including smaller ones.
Additional considerations
- The Roth 401 (k) contribution can not be canceled; after the money is invested into Roth 401 (k) account, money can not be transferred to a normal 401 (k) account.
- Employees may roll out Roth 401 (k) contributions to Roth IRA accounts after termination.
- This is the employer's decision whether to grant access to Roth 401 (k) in addition to the traditional 401 (k). Many companies find that additional administrative burdens outweigh the benefits of Roth 401 (k).
- The Roth 401 (k) program was originally set up to set after 2010 together, with the remainder of EGTRRA 2001. The 2006 Pension Protection Act extended it.
- Unlike Roth IRA, owners of Roth 401 (k) accounts destined for Roth accounts must start distribution at the age of 70Ã,½, such as the IRA and other retirement plans. (Pub 4530)
See also
- 401 (k)
- Account Comparison of 401 (k) and IRA - 401k & amp; IRA Comparison (401k vs Roth 401k vs Traditional IRA vs Roth IRA)
- 403 (b)
- Form 1099-R
- Individual Retirement Account
- Internal Revenue Service
- Rollover as Business Start
- Self-Defined IRA
References
External links
- Designated Roth Account in 401 (k) or 403 (b) Packages, Information from the IRS website.
- IRS 4530 publication (pdf file)
- Pension Plan FAQ on Designated Roth Account
- Smartmoney - Understanding Roth 401 (k)
Source of the article : Wikipedia
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