ROTH 401K vs. Traditional 401K

GIMME A TAX BREAK

Calculating the Benefits of a Roth VS Traditional 401K Plan

Yes, I did say a Roth 401K Plan. Sometimes the US Congress sets out really longer term plans and goals for the average tax payer. This is a case in point. When the 2001 Tax Act was passed, it included a provision for the conversion of 401K plans to a Roth option starting in 2006.

I know I am a little early with the thought, but I am sure all of the big brokerage houses will start a blitz campaign in the late fall. They will be offering to make complex calculations as to your benefits from contributing to a Roth VS a traditional 401K.

Save yourself some time. The calculation is a “no brainer” if you have 15-20 or more years until retirement. Anytime you can salt money away and let it compound on a tax free basis and then take it all out over a window of time without paying ANY taxes, you should do it.

The challenge might be getting the employers to convert the existing plans to the Roth status. I need to gain more knowledge on that, but I have a source for that within the family.

Between now and January 2006, continue or start to make contributions to your company’s 401K so you get use to the deferral of funds for your future retirement years. Remember, we are living longer and longer so we have to provide for our own future in the “golden years.”

If you have a question regarding retirement and or tax planning, give us a call for a brief, no-cost consultation.

10/2/2006