ຍຸດທະສາດສໍາລັບ Roth 401(k) ຂອງທ່ານ

More and more companies today are offering a Roth 401 (k) option as part of their retirement plans. If your employer is among them, and you’ve decided to go the Roth route, here are six ways to maximize your returns.

1. ເລີ່ມຕົ້ນ

As with many investments, the sooner you start, the better your eventual returns are likely to be. An added advantage of opening a Roth 401(k) as early as possible in your career is that, unlike a traditional 401(k) or traditional IRA, you fund it with after-tax income and pay taxes on that money today, rather than later in life when you may be in a higher marginal tax bracket.

Your tax rate is generally lowest when you’re young and early in your career. Once you’re further along and have received some promotions and raises, your tax rate will probably be higher. While a traditional 401(k) or traditional IRA allows for immediate deductibility of contributions, this tax benefit is often better suited for higher-earners who are in elevated tax brackets.

2. Hedge Your Bets

Nobody knows what will happen in the economy by the time your retirement date arrives. While it might not be something you want to think about, an adverse event, such as a job loss, could put you in a lower tax bracket than you are in right now. For these reasons, some financial advisers suggest clients hedge their bets by contributing to both a Roth 401(k) and a 401 (ກ).

In the investment world, a ຮົ້ວ is like an insurance policy. It removes a certain amount of risk. In this case, if you split your retirement funds between a traditional 401(k) and a Roth 401(k), you would pay half the taxes now, at what should be the lower tax rate, and half when you retire, when rates could be either higher or lower.

If your employer matches any or all of your Roth 401(k) contributions, it has to do that in a separate, pretax account, so there’s a good chance you’ll end up with both Roth and traditional 401(k)s anyway.

When in comes time to retire and withdraw contributions, this also allows you greater strategy in withdrawing funds. You may decide to withdraw a certain amount from your traditional retirement accounts to avoid a hefty tax liability; then, the remainder of you living expenses can be funded from your Roth accounts.

3. ຮູ້ຂໍ້ ຈຳ ກັດຂອງທ່ານ

If you’re under age 50, you can contribute an annual maximum of $20,500 to your 401(k) accounts for 2022 and $22,500 in 2023. If you’re 50 or over, you’re allowed an additional ການປະກອບສ່ວນເຂົ້າທຽບທັນ to 401(k)s of $6,500 in 2022 and $7,500 in 2023. You can split your contributions between a Roth and a traditional 401(k), but your total contributions can’t exceed the maximum amount.

Keep in mind that 401(k)s also have a maximum total contribution limit when considering your employer’s contributions as well. The total contributions from both you and your employer into a 401(k) cannot exceed the lesser of 100% of your salary—subject to a $305,000 max for 2022 and $330,000 max for 2023.

4. Fund a Roth IRA Too

You can contribute to both a Roth 401(k) and a separate Roth IRA, ຕາບໃດທີ່ທ່ານ don’t exceed the income limits on the latter.

For 2022, the IRS’s Roth IRA income eligibility and phase-out ranges are as follows:

• $129,000 to $144,000 for singles and heads of household
• $204,000 to $214,000 for married couples filing jointly
• $0 to $10,000 for married couples filing separately

For 2023, the IRS’s Roth IRA income eligibility and phase-out ranges are as follows:

• $138,000 to $153,000 for singles and heads of household
• $218,000 to $228,000 to married couples filing jointly
• $0 to $10,000 for married couples filing separately

Income earners below the minimum threshold can contribute 100% of the IRA contribution limit. Income earners above the threshold are not eligible to contribute. Income within the phase-out range is subject to a percentage contribution restriction.

ຂໍ້ ຈຳ ກັດການປະກອບສ່ວນ

Both Roth IRAs and Roth 401(k)s take after-tax contributions. Beyond that, the two vehicles are viewed differently as an IRA vs. 401(k). Roth IRAs are subject to the IRA contribution limit, while Roth 401(k)s are subject to the 401(k) contribution limit. The IRA contribution limit is much lower than the 401(k) limit.

In 2022, the contribution limit for any type of IRA is $6,000 if you are under 50. Individuals over 50 can contribute $1,000 in catch-up contributions. Keep in mind the $6,000 IRA limit and $1,000 catch-up contribution limits comprehensively apply to all types of IRAs you contribute to.

In 2023, the contribution limit is increased for any type of IRA, up to $6,500 if you are under age 50. Individuals 50 and older may still qualify for the additional $1,000 catch-up contribution.

You can contribute to a Roth IRA as late as the income tax filing deadline. The Roth IRA has some other benefits worth considering. You may have more investment options than your employer might offer depending on the provider, and the rules for withdrawing funds are more relaxed. You are generally able to withdraw your contributions (but not their earnings) at any time and pay zero taxes or penalties. That’s not the point of a retirement account, but knowing you could take out some money in an emergency might be reassuring.

5. Plan for Withdrawals—or Not

Once you reach age 72, you must begin to take ຕ້ອງມີການແຈກຢາຍຂັ້ນຕ່ ຳ ສຸດ (RMDs) from both traditional and Roth 401(k)s. (If you don’t, there is a penalty of 50% of the RMD amount.) However, you can avoid this problem by moving your Roth 401(k) funds to a Roth IRA. Roth IRAs don’t require RMDs during the account holder’s lifetime.

If you don’t need the cash to cover your living costs, you can let that money continue to grow well into your retirement years and even pass, untouched, to your heirs. The RMD used to be required the year you turn 70½, but following the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act in December 2019, it was raised to 72.

Note that if you’re still employed at age 72, you do not have to take RMDs from either a Roth or a traditional 401(k) at the company where you work. One difference if you do end up taking RMDs: Distributions from a traditional 401(k) are taxable at your current income tax rate, but the Roth 401(k) money is not (because you contributed from after-tax funds).

6. Don’t Forget About It

Employer-sponsored retirement plans are easy to neglect. Many people just let their account statements pile up unopened. As the years go by, they may have little knowledge of their account balances or how their various investments are performing. They may not even remember exactly what they’re invested in.

A retirement account isn’t meant for constant changes, of course. However, it’s wise to evaluate the investments you chose at least once a year. If they’re constantly underperforming, it might be time for a change, or your ການຈັດສັນຊັບສິນ may have gotten out of whack, with too much money in one category (such as stocks) and too little in another (such as bonds). If you’re not well versed in the investment world, it’s probably best to get the advice of an unbiased financial professional, such as a fee-only financial planner.

ສາຍທາງລຸ່ມ

Smart savers have many tools at their disposal to save for retirement. One of those items in their arsenal is the Roth 401(k). Though it doesn’t provide immediate tax benefits, earnings can grow tax-free. Your employer may match contributions, though those contributions will be put into a traditional 401(k). If you decide a Roth 401(k) is right for you, consider the income limits and contribution thresholds.