For 2023, a participating employee can contribute up to $22,500 in elective deferrals or up to $30,000 if they are age 50 or over.
The Roth 401(k) has been around longer than many people think. It was introduced about 20 years ago as an alternative to regular 40(k) plans. But this “newfangled” plan has been relatively slow to catch on with the public. Now new legislation dubbed SECURE Act 2.0, a follow-up to the initial SECURE Act of 2019, may give the Roth 401(k) option more juice.
How it works: As the name implies, a Roth 401(k) is a hybrid retirement plan that an employer may provide to its employees. It combines several elements of traditional 401(k) plans with Roth IRA features in designated accounts.
As with a traditional 401(k) plan, eligible employees can elect to defer part of their salary to a Roth account, subject to annual tax law limits. The employer may also choose to provide matching contributions up to a percentage of salary. Contributions benefit from tax-deferred growth within the account.
For 2023, a participating employee can contribute up to $22,500 in elective deferrals or up to $30,000 if they are age 50 or over. In comparison, contributions to a regular Roth IRA in 2023 are limited to $6,500 or $7,500 if age 50 or over. Note that the ability to contribute to a Roth IRA is phased out for high-income taxpayers, but there’s no such restriction for a Roth 401(k).
However, unlike a traditional 401(k), contributions to an employee’s account are made with...
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