» Roth 401(k)s May Offer Greater Tax Flexibility

Roth 401(k)s May Offer Greater Tax Flexibility

Hook Law Center (formerly Oast & Hook)

Hook Law Center (formerly Oast & Hook)

Virginia Beach, VA (Law Firm Newswire) July 29, 2014 – Employers who offer 401(k) retirement savings accounts are increasingly providing the option of a Roth 401(k). This presents workers with the same question that IRAs do: which to choose, traditional or Roth? According to a prominent Virginia estate planning attorney, the choice depends on individual circumstances, but Roth 401(k)s may generally offer greater tax flexibility.

“When an employer offers the option of contributing to both a traditional 401(k) and a Roth 401(k), it can be wise to make at least some Roth contributions,” said Andrew Hook, an attorney with the Hook Law Center. “That way, in retirement, one can take distributions from the traditional 401(k) until the top of a tax bracket is reached, and then take additional tax-free Roth distributions.”

Part of the decision depends on when one wishes to pay taxes. With a traditional 401(k), funds are contributed pre-tax, meaning that they do not count as taxable income at the time the contribution is made. However, the funds and any earnings are taxed as ordinary income when distributions are made in retirement. An advantage to a traditional 401(k) is that if, as with most retirees, one's income is reduced in retirement, the tax burden may be lessened within a lower tax bracket.

With a Roth 401(k), one pays tax on the income before funds are deposited in the account, but withdrawals in retirement may be tax-free. Some younger workers prefer a Roth 401(k) because they believe that they will be in a higher tax bracket after they retire than they are now. Whether or not it turns out that way for an individual saver, Roth accounts do have the advantage that earnings may grow tax-free, and younger workers have a longer time for their savings to grow before retirement. And, according to Hook, having some funds in a Roth account can give retirees greater flexibility at tax time.

Hook Law Center
295 Bendix Road, Suite 170
Virginia Beach, Virginia 23452-1294
Phone: 757-399-7506
Fax: 757-397-1267

SUFFOLK
5806 Harbour View Blvd.
Suite 203
Suffolk VA 23435
Phone: 757-399-7506
Fax: 757-397-1267
http://www.hooklawcenter.com/

  • What you should know about Roth accounts and retirement planning
    Roth IRAs and Roth 401(k)s allow individuals to make tax-free withdrawals in retirement by saving after-tax dollars. Rather than getting a tax break for saving the money, as with a traditional retirement account, Roth accounts result in tax savings later down the line during retirement. Having a Roth account can be especially beneficial for people […]
  • What you should know about myRA accounts
    MyRA accounts are a new type of government-backed starter retirement savings account, designed for people whose employers do not offer retirement accounts. As of now, anyone who has direct deposit for their paycheck can sign up and start saving. MyRA accounts are free to open and are sponsored by the government. Account holders can contribute […]
  • Increasing number of American retirees affected by student loans
    A record number of older adults now carry student loan debt, and the phenomenon is still growing: people over 60 are in the fastest growing age group for college debt, according to a report from The New York Times. A record 2.2 million people age 60 and older now hold student loan debt — three […]
  • Many employers provide back-up elder care
    Hundreds of New York employers provide back-up elder care, designed to help employees stay at work when an unexpected problem arises with elder care. Employees who have registered for back-up elder care can call a care organization when they face an unexpected interruption in elder care. Within hours, the organization will send a home health […]
  • How your life insurance policy can pay for long-term care expenses
    A number of companies, such as Life Care Funding, will purchase a senior’s life insurance policy from him or her. In exchange, the company provides a portion of the face value of the policy to individuals facing high long-term care costs. These “life settlement” companies purchase the policy from the policyholder, then continue to pay […]

See other news sources publishing this article. BETA | Tags: , , , , ,



Get headlines from Law Firm Newswire sent right to your inbox.

* indicates required