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Roth Contributions in a 401k

March 15, 2021

What is a Roth IRA?

The Roth IRA was established in 1997, named after the Senator William Roth of Delaware, who proposed the idea. Basically, Roth money, whether it goes into a Roth IRA or Roth 401k, is money that goes in after-tax. This is the opposite of traditional 401k money, which goes in after taxes.

Money from a Roth account is no longer subject to taxes, so you can let that account grow and utilize that money tax-free in retirement. This is a great tool for retirement planning!

The Roth Drawback

The major drawback of a Roth IRA is that if you make a certain amount of money, you cannot put money into a Roth IRA.

The current limits are:

  • For married couples, the limit is around $208,000 a year.
  • For an individual, the limit is around $140,000 a year.

Roth Contributions into a 401k

In 2001, a change was made to allow Roth contributions into a 401k.

Now, a lot of plans will allow you to put money in, traditionally, where you get a tax deduction as you put the money in, it goes in pre-tax, but they'll allow you to put money in after-tax or make Roth 401k contributions. The big plus here is there's no income limitation to putting money into a 401k.

So, if you've got a 401k at work, you can put money into the Roth option, provided that your plan allows it.

You can also put a lot more money into a 401k than you can with a traditional IRA or Roth IRA each year. So, if you're really trying to amp up your retirement savings, a great place to do it in the 401. And if you've got that Roth option, take advantage of that inside of the plan as well.

Learn More About Roth Contributions to a 401k

We specialize in helping people plan for the retirement they want! If you are interested in learning more about IRAs and 401k's, our team is here to help!

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