The media is beginning to jump on the Roth 401(k) bandwagon - but whether it will take off with the investing public is a matter of some tax debate. At present, most experts believe those with the highest salaries will take part, The Wall Street Journal reports.
Expanding on the Economic Growth and Tax Relief Reconciliation Act of 2001, the Internal Revenue Service's Treasury division issued a proposal on March 2, 2005 to expand the 401(k) retirement plan by adding a Roth feature to it.
Beginning Jan. 1, 2006, investors in a Roth 401(k) will be able to contribute after-tax dollars to receive tax-free distributions. The reason this will be so appealing to individuals, tax experts say, is because tax rates are inevitably known to go up in the future. Another Roth advantage is that the maximum annual contribution is $15,000, as opposed to the 401(k) maximum, which caps at $7,000. Thus, most experts believe Roth 401(k)s will have greatest appeal among highly paid workers, or those who expect to be in a higher tax bracket in their retirement years.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.