Roth 401K for Beginners
Does your company offer a 401K plan? What about a Roth 401K? Chances are that if your company offers a 401K plan, you really haven’t looked into the details of what the 401K plan offers.
The 401K, either the traditional or Roth 401K, is a retirement plan that is offered to employees by most companies. The employee portion of the contribution is deducted from your paycheck, and sometimes the company will match your contribution up to a certain amount.
The amount that is matched can vary, but it is usually based upon a certain percent or dollar amount. In certain cases, company matching is not an option.
The great thing about contributing to a 401K plan is that the money is deducted from your paycheck prior to taxes being taken out. The exception to this is in the case of the Roth 401K, which the contribution is taken with after tax money. This is because the Roth 401K pays out with no taxes.
If you are a small business owner with only a limited handful of employees, this could be a great offer to your employees. While you don’t have to offer matching on contributions, you can still set up a 401K plan with numerous companies such as the Fidelity 401K plan. There are certain requirements however that have to be met in order to qualify for the 401K plans that are available. Each company can clarify those in more detail.
Although most employees think that the small deduction in each paycheck won’t amount to much in the 401K retirement plan, when this amount is added up over ones career, the compounding of interest can really make a substantial difference.
Most companies require a certain vesting period. This means that you must work a minimum amount of time in order to keep any company matching funds in your 401K. So, if your company has a 5 year vesting period and you leave before 5 years, then you can only take the contributions that you have made into the 401K up to that point.
While there are many aspects of the 401K plan, this is only the beginning. There can be some complicated aspects to many 401K plans, and with the requirements and contribution limits changing each year, it can become a burden to keep informed about your 401K.
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If you are new to a 401k, looking into getting a 401k, or just curious about how it might fit into your retirement package, then you have come to the right place.