» 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/

  • Protecting an Inheritance from Divorce
    One of the most common questions estate planning attorneys receive is the proverbial, “Should I have a will or a trust?” Although the answer to that question must be given in light of each client’s individual circumstances, one primary consideration in creating an inter vivos trust is the protection that it can afford beneficiaries upon […]
  • Dementia and Driving
    Currently, more than 5 million Americans are living with dementia, and that number is expected to increase to over 16 million by the year 2050.  While many aspects of dementia are still a mystery, the disease itself and many of its affects are familiar.  Due to the eventual impairment to memory and executive decision-making skills, […]
  • Cold or Flu – How to Tell the Difference
    Well, it’s that time of year again—cold and flu season! If you haven’t had either one, you’re extremely fortunate. Experts tell us that more than 60,000 people in the US have had the flu already this year. According to Margarita Rohr, a clinical instructor of medicine at New York University’s Langone Health, ‘This season is […]
  • Tax Rates Affected by New Tax Law
    The Tax Cuts and Jobs Act (“TCJA”) resulted in major changes to the individual and corporate income tax rates that take effect January 1, 2018. Rate changes for individuals. Individuals are subject to income tax on “ordinary income,” such as compensation, and most retirement and interest income, at increasing rates that apply to different ranges of […]
  • The Problems Associated with Joint Bank Accounts
    It is not uncommon for clients to come into the office with bank and brokerage accounts held jointly with another. The common explanation received for such titling is to enable the joint account holder to handler the individual’s personal affairs. One of the most important things an estate planning or elder law attorney can do […]

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



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

* indicates required