Roth 401(k)s May Offer Greater Tax Flexibility
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
5806 Harbour View Blvd.
Suffolk VA 23435
- 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 […]
- Do You Need to Revisit Your Estate Plan in 2017? The Answer is Probably “Yes.”
Estate Planning attorneys generally advise that plans be revisited with regularity to adjust for changes in law and changes in personal circumstance. At a minimum, your estate planning documents should be reviewed every 2-5 years, but 2017 is unique in that recent legal and political changes make it more likely that your estate plan needs […]
- The 65-Day Rule: What Every Trustee Should Know about Taxes
Happy New Year! We hope you and yours had an enjoyable holiday season and that 2017 brings you happiness and good health. With the close of the calendar year behind us, tax season is just beginning for individuals and many entities. If you are serving as the trustee of a complex trust, however, it’s not […]
- ABLE Accounts Open in Virginia
For those of you who have been waiting for Virginia529 to open the enrollment process for ABLE accounts, your wait is over. The Stephen Beck, Jr. Achieving a Better Life Experience (ABLE) Act was signed into law in December, 2014 and Virginia passed legislation in March, 2015 to direct Virginia529 to develop, implement and administer […]