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Roth 401k Retirement Plans Basics

401k plans have become almost a necessary feature offered by employers. Roth 401k can be added to this plan by the employer's discretion.

Roth 401k plans give you the opportunity to defer after tax salary paychecks. Additionally, the money accumulated within a Roth 401k account is not subject to taxes throughout the year. In contrast, normal 401k plans allow you to do so with your pre-tax dollars.

On the other hand, there is a major difference in terms of withdrawals that allows you to make such from your Roth 401k account without being subject to normal income taxes. Thus, the withdrawals you make when retirement is reached are not taxed by Uncle Sam when the necessary requirements set by the IRS are met.

However, Roth 401k plans have their negative sides you should examine before you invest in them. One of them is that there is a contribution limit, similar to the traditional 401k, on the amount of the contributions you can make.

It is also worth noting that this type of 401k is provided only for deferrals of employees. This means that the employer's money is not characterized as Roth-type. This is done with only the salary deferral of the employee. Thus, the matching contributions and other employer money are not included in this retirement feature.

Finally, keep in mind that the Roth 401k plans are not said to be here forever. They should be renewed in 2011 by the Congress. If these provisions are not taken, this type of 401k may not be made permanent. All we can do is to wait for the further actions of the Congress to see how they will decide on the destiny of Roth 401k plans.

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