What are the Advantages of the Roth 401(k)?

By hrlineup | 17.12.2019

Roth 401(k) is an investment savings account that is sponsored by employers and is funded by post-tax money until that time the contribution limit of the plan will be attained. It is the kind of investment account that is suitable for people who feel that they might be in a higher tax bracket after retirement. This account is different from the traditional 401(k) plan, which was usually funded with pretax money and whose future withdrawals were taxed. Employee contributions to this plan are made using after-tax money. There are usually no limitations to participate but there can be contribution limits that are based on the contributor’s age. All withdrawals are non-taxable.

The benefits of Roth 410k

1. Enjoy a tax-free income source in retirement

There are currently many sources of income in retirement today, including social security benefits, investment incomes and the traditional 401(k). These are all taxable incomes and they might significantly increase your tax bracket from your current bracket. The more incomes you have, the more your social security benefits will be taxed. That is why it helps a lot to have a tax free income. If you have a lower income amount, your tax liability goes down and so does your tax bracket. You will be able to enjoy your taxable income in retirement without paying a lot of money in tax.

2. Enjoy all the benefits of traditional 401(k)

Roth 401(k) comes with all the benefits of the traditional 401(k) plan, only that contributions are made after tax and not before tax. The main benefit here is that some employers will offer to match contributions to your plan, which is basically free money. Companies that offer a matching contribution will help you contribute more towards your retirement plan. Besides, Roth 401k employer contributions are not considered in your annual contribution limit; therefore you can enjoy more tax-free money after retirement with the plan.

3. No required minimum distributions

Roth 401(k) does not have a requirement for minimum distributions. This means that you can keep all the money and pass it on to your heirs. After retirement and after attaining the age of 70 ½, it is always a requirement for anyone in the traditional 401(k) plan and IRAs to start taking withdrawals, even if you do not need any income at that time. Every distribution you get annually from these retirement plans is taxed. This takes away your chance of leaving something substantial to your heirs, which is different from Roth 401(k).

4. A chance to save more for retirement

We are all uncertain about the future; that is why we should make proper plans for the future today. A chance to save more for the future is always welcome, and this is what employee Roth 401(k) deferral is offering. There is always an annual contribution limit for both the traditional 401(k) plan and the Roth, for contributors above 50 and those below 50. It is important to know that the money in the Roth plan is more valuable than what you have in the traditional plan. You can withdraw from your Roth as many times as you want without being taxed. Besides, the Roth account will be tax-advantaged when you really need it. You will pay more on tax at the moment but then enjoy more money in retirement.

5. No income limitations for contributors

Anyone that wants to enjoy the benefits of Roth 401k can, since there are no income limitations for one to contribute to the account. Unlike other Roth IRAs, where there is always an income limitation, the 401k plan is meant for all people, including high income earners. The plans are also available as options in more than half of companies’ 401(k) plans.


Roth 401(k) is a great plan for all employees who want to save more for their future. It has so many benefits especially for a person who is in a low tax bracket at the moment and is expecting that his tax bracket might go higher after retirement. The contributions are taxed beforehand; therefore all your contributions plus interests will not be taxed once you start withdrawing your money. If on the other hand you expect your tax bracket to fall from what you currently in, Roth 401(k) may not be of benefit to you.