Tax Free Retirement Income with the Roth IRA and Roth 401(k)
Copyright (c) 2006 Daniel Lamaute
Lamaute Capital
http://www.InvestSafe.com
Under this year's new tax rules it's possible to have a Roth
401(k) in addition to a Roth IRA for Tax Free Retirement Income.
Unique to the Roth retirement accounts - Roth 401(k) and Roth IRA
- participants save part of their salary on an after-tax basis
and their money in the Roth accounts can grow and remain
tax-free. That's right; the principal and accumulated earnings
of a Roth account can be withdrawn tax-free, provided that
certain qualifications are met. In contrast, contributions to a
traditional IRA, 401(k), etc, are on a pre-tax basis but
withdrawals of every dollar in the traditional accounts are taxed
as ordinary income.
Most employees will have to wait awhile to participate in a Roth
401(k) because employers have been slow to make the necessary
amendments so that their 401(k) can accept Roth contributions,
according to a Hewitt Associates survey. But the self-employed,
independent contractors and other business owners with no
employees can get a Roth 401(k) as a feature in their
Self-Employed 401(k) right away.
A Roth 401(k) is like the luxury version of the Roth IRA. For
example, in 2006, the Roth 401(k) salary deferral limit is
$15,000 vs. $4,000 for the Roth IRA, and the "catch up" for
those 50 and older is $5,000 vs. $1,000 for the Roth IRA. Loans
can be taken from a Roth 401(k) account, but not from a Roth IRA.
And, unlike the Roth IRA high income earners are not restricted
from having a Roth 401(k).
401(k) contributions can be split between the pre-tax account and
the Roth after-tax account. However, the aggregate contributions
must not exceed the elective deferral limit. Profit sharing or
employer contributions must be made on a pre-tax basis.
The Roth 401(k) feature would probably appeal most to:
* Individuals who think that their tax rate may be higher when
they are ready to retire.
* Long term investors that have the potential to accumulate
considerable compounded earnings in their account over time and
never want to pay tax on those gains.
* Those concerned with passing some their retirement funds
tax-free to their beneficiaries.
* High income earners who do not qualify for the Roth IRA.
The Roth feature of the Self-Employed 401(k) is valuable tool
which allows the small business owner to tailor his investment
strategy. The Self-Employed 401(k) can be started by any business
that employs only owners, or owners and their spouses, including
C corp, S corp, partnerships, and even sole proprietors working
from home.
Given the complexities of tax rules before reaching a conclusion
one should contact his tax advisor regarding his specific legal,
investment or tax situation.
---------------------------------------------------------------------
One can visit http://www.investsafe.com to request a free
information kit on the Self-Employed 401(k) with the Roth
and loan features.
Daniel Lamaute
Retirement Plan Specialist
Lamaute Capital, Inc.
http://www.InvestSafe.com
Copyright (c) 2006 Daniel Lamaute
Lamaute Capital
http://www.InvestSafe.com
Under this year's new tax rules it's possible to have a Roth
401(k) in addition to a Roth IRA for Tax Free Retirement Income.
Unique to the Roth retirement accounts - Roth 401(k) and Roth IRA
- participants save part of their salary on an after-tax basis
and their money in the Roth accounts can grow and remain
tax-free. That's right; the principal and accumulated earnings
of a Roth account can be withdrawn tax-free, provided that
certain qualifications are met. In contrast, contributions to a
traditional IRA, 401(k), etc, are on a pre-tax basis but
withdrawals of every dollar in the traditional accounts are taxed
as ordinary income.
Most employees will have to wait awhile to participate in a Roth
401(k) because employers have been slow to make the necessary
amendments so that their 401(k) can accept Roth contributions,
according to a Hewitt Associates survey. But the self-employed,
independent contractors and other business owners with no
employees can get a Roth 401(k) as a feature in their
Self-Employed 401(k) right away.
A Roth 401(k) is like the luxury version of the Roth IRA. For
example, in 2006, the Roth 401(k) salary deferral limit is
$15,000 vs. $4,000 for the Roth IRA, and the "catch up" for
those 50 and older is $5,000 vs. $1,000 for the Roth IRA. Loans
can be taken from a Roth 401(k) account, but not from a Roth IRA.
And, unlike the Roth IRA high income earners are not restricted
from having a Roth 401(k).
401(k) contributions can be split between the pre-tax account and
the Roth after-tax account. However, the aggregate contributions
must not exceed the elective deferral limit. Profit sharing or
employer contributions must be made on a pre-tax basis.
The Roth 401(k) feature would probably appeal most to:
* Individuals who think that their tax rate may be higher when
they are ready to retire.
* Long term investors that have the potential to accumulate
considerable compounded earnings in their account over time and
never want to pay tax on those gains.
* Those concerned with passing some their retirement funds
tax-free to their beneficiaries.
* High income earners who do not qualify for the Roth IRA.
The Roth feature of the Self-Employed 401(k) is valuable tool
which allows the small business owner to tailor his investment
strategy. The Self-Employed 401(k) can be started by any business
that employs only owners, or owners and their spouses, including
C corp, S corp, partnerships, and even sole proprietors working
from home.
Given the complexities of tax rules before reaching a conclusion
one should contact his tax advisor regarding his specific legal,
investment or tax situation.
---------------------------------------------------------------------
One can visit http://www.investsafe.com to request a free
information kit on the Self-Employed 401(k) with the Roth
and loan features.
Daniel Lamaute
Retirement Plan Specialist
Lamaute Capital, Inc.
http://www.InvestSafe.com
