RothIRA 401K PPC

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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.