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Benefits of a Roth 401k

December 20, 2022

Have you ever wondered if a Roth 401(k) could be right for you? An increasingly common 401(k) feature in recent years has been the option for Roth 401(k) contributions. A Roth 401(k) has some of the same characteristics of its close relative – the Roth IRA. Both allow contributions that are made after-tax and any earnings grow tax-free.  That quickly brings us to the differences.  

The Roth 401(k) has the benefit of a much higher contribution limit, allowing those that are able, to stuff away a lot more than they otherwise could with Roth IRA. In fact, the Roth 401(k) limit is typically over 3 times what the Roth IRA limit is, making it a much more powerful savings tool.

There are also income limitations to pay attention to. Roth IRA contributions are not allowed for higher income earners that exceed certain limitations.  This is where Roth 401(k)s have a major advantage since there are no income limits! This is a major difference from Roth IRAs that is often overlooked and makes Roth 401(k)s a fantastic way to put money in a Roth treated account, even at higher income levels.

It’s also important to keep in mind that generally 401(k) plans allow you to contribute to either the Traditional or the Roth 401(k) - or a combination of the two.  This means you can contribute to either option in any combination you want, as long as your total contributions are within the annual limits that are set. Often, we find mixing contributions across these two options can make the most sense, but of course every situation is different and lots of variables should be taken into account such as your age, income levels, and projected income levels in the future. Even your current mix of investment and retirement accounts should be considered.

We invite you to contact your team at Stonegate for a closer look at how you might take advantage of a Roth 401(k) and maximize where to save your hard-earned investment dollars for today and tomorrow.

Roth 401(k) plans are long-term retirement savings vehicles. Contributions to a Roth 401(k) are never tax deductible, but if certain conditions are met, distributions will be completely income tax free.  Unlike Roth IRAs, Roth 401(k) participants are subject to required minimum distributions at age 70.5.