Because Social Security does not provide enough revenue to sustain the elderly by itself, workers today have to make an effort to save on retirement independently, and a good way to do so is through employer-sponsored 401 (k ) plans. These days, the 401 (s) come with generous annual contribution limits – $ 19,000 for workers under the age of 50, and $ 25,000 for those over 50 years of age.
Unfortunately, most with 401 (k) who do not utilize a key feature: the Roth saving option.
The Roth savings component was not always available widely among 401 (k) s, but today an estimated 70% of the companies offer it. Yet, only 11% of workers save in a Roth 401 (k), despite the many benefits it offers. If you haven't yet put money into a Roth 401
Why save in a Roth 401 (k)?
When you put money into a traditional 401 (k), your contributions go tax-free, which means that you attach an instant tax credit to fund your pension plan, but when it's time to retire, these dividends are taxed as ordinary income.
Roth 401 (k ) You do not get a tax break on the money you deposit, but when funded, your account will grow tax-free, which means that you do not face tax on investment gains and when you are ready to withdraw in retirement, they are your free and tax free, it can give you much more economical wine room later in life, especially when you are limited to a fixed income.
Furthermore, unlike Roth IRAs, Roth does not prohibit 401 (k) Higher incomes to make contributions, you can earn as much as you can, and Roth 401 (k) will still be on the table.
It pays to consider a Roth 401 (k) if you expect to be in a higher tax bracket in retirement than you currently are. Generally speaking, if you are on a young side and your earnings have not come close to the top, it is a meaning with Roth 401 (k).
Remember that both traditional and Roth 401 (k) introduce required minimum distributions, or RMDs, when you fill 70 1/2. At that time, you are forced to withdraw part of the account balance each year, or risk paying a penalty of 50% of that sum to the IRS. With a traditional 401 (k), RMD increases your tax liability automatically, even if you don't choose to withdraw the money as much as being forced. But with a Roth 401 (k), the mandatory withdrawal will not add to your tax bill.
That said, you don't have to put all of your money in a Roth 401 (k). Rather, you can allocate your savings between a traditional 401 (k) and a Roth to reap some tax savings ahead of time, but also get the benefit of taxing some of your savings down the line.
In fact, the beauty of Roth 401 (k) is that it buys you more security during retirement by eliminating any kind of taxation to take out. Even though you expect your tax class to be the same later in life as it is today, it pays to consider putting some of your savings in a Roth.