Roth 401(K) Plan

  • A Roth 401(k) is an employer-sponsored investment savings account that is funded with post-tax money up to the plan’s contribution limit. This type of investment account is well-suited to people who think they will be in a higher tax bracket in retirement than they are now.

    • What is a Roth 401(K) plan?

      A Roth 401(k) combines the most advantageous aspects of both the 401(k) and the Roth IRA. A Roth 401(k) is a retirement plan that is funded with contributions after taxation up to the plan’s contribution limit.

    • What are the benefits of a Roth 401(k)?

      A Roth 401(k) is appropriate for people who will be in a higher tax bracket in retirement.

    • Who may establish a Roth 401(k)?

      Any employer is eligible to establish a Roth 401(k).

    • Who may participate in a Roth 401(k)?

      Both employers and employees may participate in a Roth 401(k) plan.

    • How do I start a Roth 401(k)?
      1. Adopt a written plan, called the plan document, which outlines its day-to-day operations.
      2. Identify a plan provider and/or trust for the plan’s assets and investments.
      3. Select a recordkeeper or recordkeeping system to track contributions, earnings and losses, and distributions. This person or entity will also help prepare the annual return, which must be filed with the federal government.
      4. Select a third party administrator to maintain the plan document, fulfill daily tasks and ensure compliance with federal regulations. Your financial advisor may choose a third-party administrator and/or recordkeeper on your behalf.
      5. Provide eligible employees, or plan participants, with a summary plan document (SPD), which is the document that outlines who can participate and how the plan works.

      The written plan also provides a central document, or collection of documents, which explains the rights of the employees and employee eligibility for participating in the plan and enables government agencies to determine whether it satisfies applicable laws.

      If the plan allocates responsibilities for performing administrative functions to other parties, such allocation must identify who is responsible for ensuring compliance with the requirements of the tax code, including compliance requirements for loans and distributions.

      In the case of funding through multiple financial institutions, the employer may adopt a single written plan to coordinate administration among the financial institutions, rather than having a separate document for each issuer.