A Roth 401(k) is an employer-sponsored retirement account that combines features of a traditional 401(k) with the tax-free withdrawal benefits of a Roth IRA. Contributions are made with after-tax dollars, meaning you don't get a tax break now, but qualified withdrawals in retirement — including all investment growth — are completely tax-free. The contribution limits are the same as a traditional 401(k).
Roth 401(k)
Definition
A Roth 401(k) is an employer-sponsored retirement account that combines features of a traditional 401(k) with the tax-free withdrawal benefits of a Roth IRA. Contributions are made with after-tax dollars, meaning you don't get a tax break now, but qualified withdrawals in retirement — including all investment growth — are completely tax-free. The contribution limits are the same as a traditional 401(k).
Example
A 35-year-old contributing $23,500 annually to a Roth 401(k) for 30 years at 7% average returns would accumulate approximately $2.2 million — all withdrawable tax-free in retirement.
Key Points
- 1After-tax contributions, tax-free withdrawals in retirement
- 2Same contribution limits as traditional 401(k)
- 3No income limits (unlike Roth IRA)
- 4Ideal if you expect to be in a higher tax bracket in retirement
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