» 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/

  • Issues to Consider when Your Child Goes off to College
    It’s February, folks. That means that college acceptance letters will soon be arriving via email, snail mail or however they get around these days. Once the initial euphoria has worn off and you know that your child is definitely going to college and you have made peace of a sorts with how you are going […]
  • Commonly Overlooked Tools for Incapacity Planning
    Every individual should have a plan for when they can no longer make decisions for themselves effectively but most delay planning because it entails the confronting their fears about disability, death, and dying. As the U.S. population ages in greater numbers due to aging baby boomers and increased longevity, the marketplace has responded to the […]
  • Will Medicaid Take My House?
    We hear this question all the time: “If I apply for Medicaid, will they take my house?” The answer is no; however, there are certain situations in which your home may be counted against you in determining whether you have too many available resources to meet the financial qualifications for long-term care Medicaid.  If the […]
  • Maximizing Your Child’s SSI by Utilizing ABLE Accounts
    I see a large number of clients who have a child receiving SSI as a result of a disability. In many cases, the child is not receiving their full SSI check ($735 per month for the year 2017) as a result of in-kind support and maintenance provided to the child by the client. This reduction […]
  • Intra-Family Conflict After Death – It’s Expensive
    Within the confines of this office’s newsletters over the years are strategies designed to assist you in planning your estate to implement your decisions, your goals, avoid taxes and avoid probate. But were you aware that even the best laid estate plans can be torn apart by feuding family members after you are gone? Intra-family […]

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



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

* indicates required