New Roth 401(k) plan.Starting Jan. 1, 2006, employers can offer Roth 401(k) plans, which combine features of the traditional 401(k) with those of the Roth IRA Roth IRA An individual retirement plan that bears many similarities to the Traditional IRA. Contributions are never deductible, and qualified distributions are tax-free. A qualified distribution is one that is taken at least five years after the taxpayer established his/her first . Like traditional 401(k) plans, Roth 401(k) contributions are taken out of a participant's paycheck and deposited into selected investment options. However, contributions to Roth 401(k)s will be made with after-tax dollars. While there is no upfront tax deduction Tax deduction An expense that a taxpayer is allowed to deduct from taxable income. tax deduction See deduction. , the account will grow tax-free and withdrawals will be tax-free provided they are taken after age 59 1/2 and after at least five years from the first contribution date. At press time, the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. was still working on the final regulations governing gov·ern v. gov·erned, gov·ern·ing, gov·erns v.tr. 1. To make and administer the public policy and affairs of; exercise sovereign authority in. 2. Roth 401(k) plans. Read the proposed regulations at www.treas.gov/press/releases/js2288.htm. |
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