The Roth 401K is a type of 401K plan, or retirement plan, to which the contirbutor can contribute money post tax. Companies can match to a Roth 401K plan, however all matching amounts must be made pre-tax. In 2008, the maximum amount of contirbution is $15,500 for contributors under 50 years old. The company can match up to The draw of this is that the money in this account which was contributed post-tax will then NOT be taxed if the cash is withdrawn 5 years after initially deposited and after the age of 59 1/2. This is the age old philosophy that taxes will continue to increase, especially if the employee's earning potential and consequently tax bracket increase with time, so it's better to pay the taxes on the cash now instead of 20+ years down the road when taxes will be higher. Any amounts contributed by the company pre-tax will be taxed when the funds are withdrawn at the going tax rate.
I think this is a great option, especially for contirbutors in their early 20s. Not too many companies offer this type of 401K, unfortunately.
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About the reviewer
Apr 2, 2008
Sep 9, 2010 02:02 AM UTC