Roth 401(k): a new way to grow money tax-free

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Roth 401(k): a new way to grow money tax-free

By Laura Bruce • Bankrate.com
May 20, 2005

Pretax or after-tax? That is the question many employees will face starting Jan. 1, 2006, when the government allows companies to offer a Roth 401(k).

The Roth 401(k) will give employees the option of setting aside money from their paychecks that's already been taxed and saving it in a retirement account where it can grow tax-free forever. A Roth 403(b) will be available to 403(b) plan participants.

If you have a regular 401(k) or a regular Roth IRA, you'll still be able to contribute to both of those accounts; the Roth 401(k) is simply another option.

The Roth 401(k) is similar to the Roth IRA in that after-tax money is being saved and grows tax-free, but, as its name implies, the new account will fall under 401(k) rules. Those rules, as they pertain to the new account, are still in the "proposed" stage. The IRS may tweak them in the months to come, but here are some of the main features of how the Roth 401(k), as it stands now, will...................


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