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Roth 401k Retirement Plans Disadvantages

Roth 401k retirement plans provide many benefits to their users. However, while they can provide you with free from taxation income during your retirement years, they also have hidden negative implications. This article will give you an insight on the negative sides of Roth 401k retirement plans that you should expect.

Roth 401k Plans Negative Implications

Tax laws experience constant change. This means that we don't know what their provisions will be in the future. As a result your tax bracket may change and leave you in an unbeneficial position.

Additionally, under the requirements of Roth 401k plans you don't get current year tax deduction. As a result, you will have to spend some time in waiting for the tax benefits to be experienced. On the other hand, traditional 401k contributions enjoy current year reduced taxable income.

There is a difference between non-qualified Roth IRA distributions and non-qualified Roth 401k distributions in terms of treatment. Even if you have not distributed the whole sum of money, you may be required to pay taxes on the earnings you have made on a Roth 401k account. On the other hand, under the conditions of Roth IRA you can just claim the withdrawal of the initial amount of money.

The end of Roth 401k retirement plans is set to be 2011. After this the Congress should decide whether it should be made permanent. This means that you cannot be sure that you will be able to make contributions to your Roth 401k account after the year 2010.

Another negative side of Roth 401k plans is that you should determine whether the money you place will be classified as Roth-type for at least five years. If you roll the money to a Roth IRA account, it can lose its status as 5 plus year aging.

An additional drawback is connected with the so called first-time home purchase. Withdrawals for such purposes may be subject to taxes.

Conclusion:

Before selecting Roth 401k retirement plan you should make sure that you know not only its advantages, but also its negative sides. The disadvantages stated here may not be truly negative effects for you. It all depends on your financial conditions.

Additionally, have in mind that the contents of this article are just of informative character. We don't know what your real financial situation is. So, before you take any decisions it is recommendable to address your financial and tax advisor first.

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