A Roth 401(k) is a type of employer-sponsored retirement plan that offers unique tax benefits for workers saving for retirement.
Unlike traditional 401(k) plans, which allow pre-tax contributions, Roth 401(k)s are funded using after-tax dollars.
This means that the contributions are taxed upfront, but the withdrawals are tax-free during retirement.
This arrangement can be particularly beneficial for individuals who expect to be in a higher tax bracket in retirement.
Roth 401(k) plans are available through employers and are subject to annual contribution limits, which are adjusted for inflation.
For 2024, the contribution limits are $23,000 for those under 50 and $30,500 for those 50 and older.
Contributions are made through payroll deductions, and employers may also offer matching contributions.
One of the key benefits of Roth 401(k)s is the ability to withdraw funds tax-free during retirement.
To qualify for tax-free withdrawals, account holders must have held the account for at least five years and be 59½ or older.me text
Roth 401(k)s have no required minimum distributions (RMDs), therefore account holders can keep funds in the plan indefinitely without penalty.