Roth 401(k)s May Offer Greater Tax Flexibility | Law Firm Newswire

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/

  • Assuming Roles of Trustee and Power of Attorney
    Your loved one has lost capacity and you are named in their Power of Attorney and/or Trust – Now what? If you are fortunate, your loved ones have done their estate planning and put documents in place to enable a trusted person to assume the management of their financial affairs in the event of their […]
  • The Effect of Annuities on Long-Term Care Plans
    Annuities are great investments for people who are frightened by the stock market or need a tax-deferred investment, and they have long been used to ensure a guaranteed income in retirement. In simple terms, an annuity is a contract with an insurance company whereby the purchaser pays a certain amount of money and the insurance […]
  • What Happens to My Online Accounts After I Die?
    In today’s world, many people connect with friends and family via social media more than they do in “real life.” Additionally, online shopping has expanded vastly in the past several years, and most people have several online accounts they use regularly. While the Internet has allowed us to have more connections and to conduct business […]
  • Impeaching Wills
    We often hear from family members who are unhappy with the terms of a loved one’s current Will. The issue is often laced with problematic family dynamics where multiple people claim undue influence or lack of capacity. This intricate web of issues can lead to expensive litigation. As an attorney, the most important factor when […]
  • Is That Really Enough to Retire?
    A recent study by the Associated Press NORC Center for Public Affairs research found that almost 40% of Americans feel confident in their retirement savings. This appears to be a positive statistic given that 10,000 Americans reach 65, traditional retirement age, every day. However, some experts argue that the confidence may be faulty, or, may […]

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



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

* indicates required