ROTH 401(K)S BRING TOGETHER THE HIGHER CONTRIBUTION LIMITS OF A 401(K) WITH SOME OF THE TAX-FREE WITHDRAWAL OPTIONS OF A ROTH IRA
A Roth 401(k) is exactly what it sounds like: it’s a combination of a 401(k) and a Roth IRA. It is an employer-sponsored investment savings account that is funded with post-tax money up to the plan’s contribution limit. This type of investment account is well-suited to people who think they will be in a higher tax bracket in retirement than they are now.
Who Is Eligible for a Roth 401(k)?
If your employer offers it, you’re eligible. Unlike a Roth IRA, a Roth 401(k) has no income limits. That’s a great feature of the Roth 401(k). No matter how much money you earn, you can contribute to a Roth 401(k), if your employer offers it.
What is the difference between a Roth 401(k) and a traditional 401(k)?
A Roth 401(k) is a post-tax retirement savings account. That means your contributions have already been taxed before they enter your Roth 401(k) account.
On the other hand, a traditional 401(k) is a pretax savings account. When you invest in a traditional 401(k), your contributions go in before they’re taxed, which makes your taxable income lower.
- What are the contribution limits for a Roth 401(k)?
For 2023, the 401(k) contribution limit is $22,500. This contribution limit applies to any 401(k) contributions, whether they are in a Roth 401(k) or a traditional 401(k). That means if you’re contributing to both, the combined total of your contributions can’t exceed $22,500.
If you’re 50 or above, the contribution limit increases to $30,000.
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