I’ve said it before, but I’ll say it again, why aren’t you using a Roth 401(k) or Roth IRA as your savings vehicle for retirement? The big advantage is that when you need the money most to fund your retirement the proceeds from your Roth are tax free, yup no taxes on the earnings from the money you invested in a Roth plan. Despite this, only 40% of 401(k) plans offer the Roth option and when the Roth is offered only ten percent of participants take advantage of the Roth.
What are these people thinking? Are these the same people we expect to make informed decisions about their health benefits plan?
We seem to be so enamored by the pre-tax feature of the traditional 401(k) plan we forget the longer term consequences. A traditional 401(k) is tax-deferred, not tax free AND the earnings accumulated in the 401(k) are taxed as ordinary income, not as capital gains or dividends … biiiiiiiig difference (at least under current tax law). In addition, take a big taxable distribution from a 401(k) plan and you could bump up your Medicare premium or the amount of taxable Social Security you receive.
Using a Roth deserves very serious consideration in in my opinion. Now is the time to get off your duff and take a close look. I’m not alone, take a look at what some experts say about the Roth.
Times they are a changing…more and more workers must plan and finance their own retirement and that includes leveraging every opportunity to maximize their future income.
In San Jose, Calif.—where registered Democrats outnumber Republicans—voters overwhelmingly approved a ballot measure to force city workers either to pay significantly more toward their pensions or accept more modest benefits.
And in San Diego, voters backed a measure that will put many newly hired city workers into a 401(k) retirement plan rather than the guaranteed pensions current employees receive.
“Liberals and conservatives all understand the same thing: We have had to cut services to pay for pensions,” said San Jose Mayor Chuck Reed, a Democrat. WSJ June 7, 2012
Every sunset is another day closer to retirement.
- Roth 401(k)s vs. Traditional 401(k)s (401kplanadvisors.com)