Brand new employer sponsored retirement plan is a hybrid of a
traditional 401k and a Roth IRA.
Income tax rates have been cut, the marriage penalty done away
with, and the "death tax" is also on a path to no more. All of
this is a result of the Bush administration's Economic Growth
and Tax Relief Reconciliation Act which was passed by a
Republican congress in 2001. Another provision of that act goes
into effect on January 1st, 2006, a hybrid of a traditional 401k
and a traditional Roth IRA called the Roth 401k.
Yet another employer sponsored savings plan, the new Roth 401k
works in almost the same way as a traditional 401k
a> plan. Workers invest a portion of their income into a fund
along with contributions from their employer (if any). The
difference is that the traditional 401k is funded with "pre-tax"
dollars and the Roth 401k plan uses "after-tax" dollars.
However, with the Roth 401k, withdrawal of your money at
retirement will be tax free like a Roth IRA
. The traditional 401k plan defers the tax owed during your
career until retirement.
Although it may sound like the best of both worlds, it is
important to note that no employer is 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 currently offering the traditional 401k plan are
considering implementing the new Roth 401k.
Employees may now want to begin inquiring whether their employer
will be offering the new retirement plan in 2006. Contribution
limits for the retirement plans are: in 2005, $14,000 for a 401k
and $4,000 for an IRA, whether Roth or traditional. In 2006,
this amount will increase to $15,000 for both 401k and IRAs.
For in depth answers to your retirement and investment
questions, visit to http://www.HowMuch
Answers.com - providing simple and easy to understand
information about 401k plans and IRA accounts.