Pacific Life has decided to offer the Roth 401(k) option in its Individual(k) program, allowing small business plan participants to designate any contributions as pretax salary deferrals or after-tax Roth contributions.
Investors in a Roth 401(k) are able to contribute after-tax dollars to receive tax-free distributions. Since tax rates are inevitably known to go up in the future, the Roth has appealed to some. Another Roth 401(k) advantage is that the maximum annual contribution is $15,000, as opposed to the Roth IRA maximum, which caps at $7,000.
"This is one of the best opportunities to accumulate assets for tax-free income later on. Flexible tax-planning options, automatic diversification and ease of use are key in planning for retirement," said Kathleen McWard, vice president of marketing, in Pacific Life's annuities and mutual funds division. "Our moderate, moderate aggressive and aggressive funds all outperformed the S&P 500 in 2005 - even after adjusting for fees. By using an 'Easy-Score Questionnaire,' finding the right fund for your personal risk tolerance is a simple process."