Man's new best friend could be Roth 401(k) - June 13, 2005

[roth401k]

Man's new best friend could be Roth 401(k)

Chicago Sun-Times
June 13, 2005

BY TERRY SAVAGE SUN-TIMES COLUMNIST

What do you get when you cross a labrador with a poodle? It's called a "labradoodle," a very cute dog I was introduced to last week. Now, what do you get when you cross a Roth IRA with a 40l(k) plan? You get a Roth 40l(k) -- and it's no dog of an investment. It's a new opportunity that will face employees in January 2006.

Companies will be offering employees a choice: You can continue making a pre-tax contribution to your company 40l(k) retirement plan. That means you'll pay taxes on all the money you withdraw at retirement, with the amount of tax depending on your tax bracket at that time.

Or, your employer may offer you the chance to make an after-tax Roth contribution to your company retirement plan. In effect, you're contributing to a Roth 40l(k). And since you've paid taxes on the contribution, that money and all the growth of your investments over the years, will come out completely tax-free.

Complicated but worth it

Yes, it's complicated. Since employees will be allowed to split their contributions between traditional pre-tax IRAs and new Roth 40l(k) after-tax plans, the record-keeping will be challenging. But.....

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