Quote of the Day: on Roth 401(k)s
The Quote of the Day also qualifies as the Money Tip of the Day. From Chuck Jaffe of Marketwatch (requires registration):
If your employer doesn’t offer the Roth-k, pushing for it makes sense. Feeling like you are missing out on a chance to get rich does not.
Plan sponsors (i.e., employers) can offer their employees a “Roth” option for employee 401(k) contributions beginning on January 1, 2006.
Traditional 401(k) arrangements allow you not to pay federal and state income tax on the money you contribute, but require you to pay income tax on distributions you take during retirement. Roth 401(k)s, on the other hand, do not let you exclude contributions from taxable income in the year you make contributions, but your retirement distributions are tax-free (as long as Congress doesn’t change the rules in the meantime).
Generally, the younger you are and the more likely you think it is that Congress WON’T tinker, the more advantageous Roth contributions to 401(k)s will be.
As noted previously, very few employers plan to offer the Roth 401(k) option starting in 2006, and are playing a wait-and-see attitude. Only concerted interest and/or pressure from employees will change attitudes at most companies.
