By Simon Fox
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
into effect on January 1st, 2006, a hybrid of a traditional
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 plan.
Workers invest a portion of their income into a fund along
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.
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.
About The Author: For in depth answers to your retirement and
investment questions, visit to www.howmuchanswers.com -
providing simple and easy to understand information about 401k
plans and IRA accounts.