Roth 401K

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Brad Barrett discussed various aspects of Roth 401Ks in the "ChooseFI" podcast. Here are some key points he mentioned:

  1. Roth 401K Contributions: Contributions are made with after-tax dollars, which means taxes are paid upfront rather than at withdrawal. This can be advantageous if you expect to be in a higher tax bracket in retirement. It's especially beneficial for those who are early in their careers and in lower tax brackets 1.

  2. Withdrawal Advantages: Funds in a Roth 401K can be rolled over to a Roth IRA to avoid required minimum distributions (RMDs) and to withdraw contributions tax and penalty-free under certain conditions. This flexibility can be crucial for strategic financial planning, particularly if funds are needed before the usual retirement age of 59 ½ 2.

  3. Tax-Free Growth and Withdrawals: Any growth in a Roth 401K and subsequent withdrawals are tax-free, given that the account has been open for at least five years and withdrawals occur at retirement age. This can offer a significant advantage in terms of tax savings 3.

    Roth 401K Pros and Cons

    Sean explains the benefits and drawbacks of Roth 401Ks versus traditional 401Ks, including tax implications and future tax rate uncertainty. He also suggests that individuals can split their contributions between the two options.

    ChooseFI

    289 | The Roth 401K and Meal Planning Made Easy
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  4. Considerations When Leaving a Job: When transitioning from one job to another, it's beneficial to roll over your Roth 401K to a Roth IRA. This avoids the RMDs that would be required if the funds remained in the Roth 401K beyond the age of 72 2.

Understanding these elements can help in making informed decisions about whether a Roth 401K is suitable for your financial circumstances and retirement goals.

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