This brand-new retirement plan from an employer is a mix of a traditional 401k and a Roth IRA.
The rates on income taxes have gone down, the "marriage penalty" has been eliminated, and the "death tax" is also on its way out. All of this is because in 2001, a Republican congress passed the Bush administration's Economic Growth and Tax Relief Reconciliation Act. On January 1, 2006, another part of that law went into effect. The Roth 401k is a mix of a traditional 401k and a traditional Roth IRA.
The new Roth 401k is yet another employer-sponsored savings plan that works almost the same as a traditional 401k. Workers put some of their pay into a fund, and their employers also put money into it (if any). The difference is that the traditional 401k is funded with "pre-tax" dollars and the Roth 401k plan uses "after-tax" dollars. But if you have a Roth 401k, you can take your money out tax-free when you retire, just like with a Roth IRA. The tax you owe during your working years is put off until you retire.
Even though it sounds like the best of both worlds, employers are not required to offer this new Roth 401k plan. In fact, a recent survey by employee benefits consulting firm Hewitt and Associates found that only 31% of employers who currently offer the traditional 401k plan are thinking about putting in place the new Roth 401k.
Contribution limits for the retirement plans are: in 2005, $14,000 for a 401k and $4,000 for an IRA, whether Roth or traditional. This amount will go up to $15,000 in 2006 for both 401k plans and IRAs.
