Exploring the Benefits of a Roth 401(k) Account

A major advantage of a traditional 401(k) has always been the chance to contribute pre-tax income, let it grow over time, and pay taxes upon withdrawal. However, a Roth 401(k) offers a compelling alternative: contributing post-tax dollars and then withdrawing the entire accumulated balance, including earnings, tax-free.

Roth 401(k) Benefits and Structure

Similar to the original Roth IRA, a Roth 401(k) grows tax-free, but it is not limited by income caps. When you offer a Roth feature in your plan, contributions, earnings, and distributions are tracked separately from pre-tax 401(k) funds.

Contributing to a Roth 401(k) isn’t ideal for everyone. Whether it’s right depends on factors such as age, current and anticipated tax brackets, and income. Generally, a Roth account benefits those who expect to be in a higher tax bracket in retirement than while contributing.

Examples of Who May Benefit from a Roth 401(k)

• Younger employees looking to start retirement savings early, potentially at a lower tax rate than they’ll experience later.
• High-income earners interested in balancing tax-free retirement funds with their pre-tax savings.
• Savers approaching the required minimum distribution (RMD) age who want to minimize taxable withdrawals.

Additional Considerations

Offering a Roth option adds responsibilities for you, your advisor, and recordkeeper to educate and guide employees on whether Roth contributions align with their financial goals.

Contact us to discuss the benefits of incorporating a Roth 401(k) feature into your retirement plan. We can work together to explore if it’s the right choice for you and your employees.