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The Roth 401(k) Dilemma: To Save or Not To Save? That is the Question The Roth 401(k) Dilemma: To Save or Not To Save? That is the Question

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Heads turn. Whispers circulate. The Roth 401(k) β€” a relatively youthful option in the realm of retirement savings β€” has emerged as a favored harbor for worker’s nest eggs. A recent 2022 survey unveiled that an impressive 90% of 401(k) plans stood ready to embrace employees’ Roth contributions.

Three Nifty Reasons to Invest in a Roth 401(k)

Delve into the shimmering pros that beckon you towards steering some of your savings into a Roth 401(k) this season.

1. After-Tax Contributions

Roth 401(k)s beckon contributions in post-tax dollars, in harmony with Roth IRAs. Pay your taxes upfront upon contribution, and subsequently relish tax-free growth thereafter. Withdrawals post-59Β½, after five years of account inception, are free of tax and penalties. A win for those envisioning stable or elevated retirement incomes, boasting minimized losses to the taxman compared to the traditional 401(k) setup.

2. Bounteous Contribution Limits

Bask in the rich contribution limits of Roth 401(k)s akin to their traditional counterparts. In 2024, the under-50 crowd can stash up to $23,000, while those above 50 can accumulate $30,500 this fiscal year.

By unchaining income restrictions that shackle Roth IRAs, Roth 401(k)s offer a sanctuary to savers of all earnings calibers. A sanctuary, especially enticing for high-earners seeking to bolster their Roth nest egg minus the hassle of navigating a backdoor Roth IRA.

3. Promise of an Employer Match

Employers tailor the privilege of matching contributions to employees’ Roth 401(k), a carbon copy of their actions concerning traditional 401(k)s. A booster shot to your balance, potentially elevating it by thousands, contingent on your income, the company’s mathematical match, and your personal contributions.

Prior to 2024, pre-tax reign supreme over employer-matched funds, funneling them inexorably into traditional 401(k) terrains regardless of preference. However, the dawn of 2024 saw the advent of after-tax matches as an alternative, albeit at the employer’s discretion. A nuanced situation beckoning a tΓͺte-Γ -tΓͺte with your HR comrades if the taxing future of your employer match looms hazy.

Two Wary Reasons to Tread Lightly on Roth 401(k) Soil

Roth 401(k)s harbor their share of thorns amidst the roses of a bustling retirement account garden. Two prickly reasons lurk, awaiting acknowledgment ere your savings find haven here.

1. Constrained Portfolio Choices vis-a-vis IRAs

All 401(k)s hoist constraints on your investment horizons, entrapping them within a handful of funds handpicked by your employer. Adequate, yet not the zenith options for your wealth. Enter target date funds, a usual suspect, sculpted to calibrate their asset distribution as the sands of time trickle by. A safety net cloaked in uncertainty as high fees hover, and your retirement trajectory might diverge from this preordained path.

If this restraints chafes or a 401(k) match eludes your professional bounds, a sojourn to a Roth IRA might beckon. Most workers are authorized to stow away up to $7,000 in a Roth IRA or $8,000 if the 50-candle adorns your cake this year. Should you max out here, the Roth 401(k) should remain a welcoming harbor.

2. Handcuffed Withdrawal of Contributions sans Penalty

A conundrum surfaces with Roth 401(k)s refusing penalty-free withdrawals of contributions, in contrast to the benevolence observed in Roth IRAs, embracing benevolent withdrawal sans tax or penalty shackles, regardless of vintage. Despite the shared after-tax roots, the Roth 401(k) affords no such leniency. Prudence is in order, steering clear of tempting these funds ere retirement, casting a wary glance at Roth IRAs should emergencies beckon your funds.

Your Call to Make

The mantle of deciding the fate of your retirement nest egg rests solely on your shoulders. The joust between the pros and cons above serves as a guiding light. Yet perchance uncertainty lingers, weigh not that all your eggs nest in one Roth 401(k) basket.

Apportion a slice to a Roth 401(k) whilst the remainder finds solace in a traditional 401(k), Roth IRA, or another bespoke vessel that sings to your financial soul. Stride forth with what resonates for you today, revisiting the dais for your savings at least annually or when your financial winds of change rustle your financial sails.

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Opinions and perspectives articulated herein are the author’s own and might not seamlessly align with Nasdaq, Inc.’s standpoint.

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