Do you have a 401(k) plan at work? If so, are you taking advantage of the Roth option for it if available?
Although everyone's situation is different, we love having the conversation with clients about utilizing the Roth 401(k) when available because we do believe that flexibility is paramount in retirement.
For those of you who are not familiar, a Roth 401(k) is an option sometimes provided in employer plans, which allows you to contribute money after tax to your retirement plan. This money grows tax-free, and the withdrawals in retirement are tax-free as well.
Higher Tax Bracket in Retirement?
Although you're paying the taxes up front, if you think that you might be in a higher tax bracket in retirement or enjoy the flexibility of having multiple buckets of money to choose from, the Roth 401(k) might be a great option for you.
No Income Limitations:
Another advantage of the Roth 401(k), unlike a Roth IRA, is that there are no income limits. The contribution limits are similar to that of the traditional 401(k), and for 2024, you can put in up to $23,000. If you're over the age of 50, you can add an additional $7,500 as a catch-up contribution.
No RMDs in Retirement for your Roth Account
Roth 401(k)s also have a bit more flexibility when it comes to withdrawals. Currently, once you reach the age of 73, you are required to take a Required Minimum Distribution (RMD) from your retirement account; however, with a Roth 401(k), this is not the case, and you do not have to do so.
Passing on Your Legacy
When it comes to passing on the money to your beneficiaries, there's also an advantage here. The current rule states that with a traditional 401(k) or IRA, those monies must be withdrawn by your beneficiaries over the course of 10 years. However, with a Roth feature, this is not the case either.
Remember these contributions are Post Tax
Though we wouldn’t necessarily constitute this as a “drawback” of the contributing Roth to your 401(k), it is important to note that the money you do contribute in this manner will not lower your taxable income for the year and you may not claim it on your taxes either.
The Final Word:
At the end of the day, everybody's situation is completely different. But I would like to reiterate that we love flexibility in retirement, and we think that it's certainly worth having a conversation. Feel free to visit us atwww.rocklinewealth.comfor more insights on retirement strategies, and how we can help you reach your financial goals.
Disclaimer:
Rockline Wealth Management (RWM) is a registered investment adviser located in Plainview, NY. RWM is registered with the U.S. Securities and Exchange Commission. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission.
Rockline Wealth Management does not offer tax or legal services. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's investment portfolio. Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses.
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Real-life and fictional examples given in this video should not be viewed as guaranteed outcomes when investing. Past performance is not indicative of future results and every individual’s investment circumstances are different. Individuals should consult their financial professional before implementing their investment plan.
Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change.