Roth 401k-Like or Dislike?

[sea-tax]

I have a topic I would like to discuss.

What your thoughts on the relatively new Roth 401k. Do you have clients with established 401k's that are adding this new product?


I for one have mixed feelings about the Roth 401k and Roth's in general. On one side I think they can be used as a great tax and retirement tool for our clients. On the otherhand I am a little skeptical that the Gov't will forever allow them to be distributed tax free.

I mean history has shown us that the powers to be can up and change their minds when the time pleases them.This has been a topic which has weighed heavily on my mind. Specially becuase I offer both tax and retiement advice.

What are your thoughts?

[Unregistered]

I like ROTH IRA's, not too big on ROTH 401k

The 401k has typically been a tax reduction strategy for wage earners as they move into later years, and need both retirement accumulation and tax savings. The ROTH is of much more benefit the younger you are, because you are typically in a lower tax bracket, as you are early in your career. Of the 20 and 30 somethings I see with 401k's available to them, maybe 20% contribute, and only do so up to the comany match.

ROTH conversions are going to be a much more lucrative technique, especially after 2009, when anyone can do a conversion. You will see plenty of folks driving down taxable income in 2010 to get to convert Traditionals to ROTHs and reap the tax free earnings. I already have many clients making non-deductible IRA contributions with this in mind.

BTW, do you know of any other boards that focus more on advising and planning services? Also, do you use planning software when generating a plan, and if so, which software?

JoshInNC

[sea-tax]

The 401k has typically been a tax reduction strategy for wage earners as they move into later years, and need both retirement accumulation and tax savings. The ROTH is of much more benefit the younger you are, because you are typically in a lower tax bracket, as you are early in your career. Of the 20 and 30 somethings I see with 401k's available to them, maybe 20% contribute, and only do so up to the comany match.

ROTH conversions are going to be a much more lucrative technique, especially after 2009, when anyone can do a conversion. You will see plenty of folks driving down taxable income in 2010 to get to convert Traditionals to ROTHs and reap the tax free earnings. I already have many clients making non-deductible IRA contributions with this in mind.

BTW, do you know of any other boards that focus more on advising and planning services? Also, do you use planning software when generating a plan, and if so, which software?

JoshInNC

Josh I do use a board that focuses on advising but it through HD VEST and you have to be a HD VEst Rep to get on. Also my planning software comes from Vest I think they call it Solutions or Financial Planning Solutions. It may be software that is made and distributed only for Vest Reps.

Secondly I understand your explaination of the benefit of Roths but , What if the IRS changes the way they are taxed? I mean it used to be that you could deduct cc interest long ago on the sch a now you cant. Heck Social Security used to be taxed on wages of a lot less but they changed that. Once before my time I think Social Security was not even taxed at all. What is to say that they won't change Roths. This leads me to lean more towards Traditional IRA's and 401k's .

[Unregistered]

Roth

Congress does alot of dumb things, but do not think taxing a Roth would ever be one of them. At most, they could tax only the earnings and if that did happen I doubt it would effect current Roth's - at the worst, only future ones.

[veritas]

They will start taxing Roth's in the future. But only "rich" people, thats always there easy escape clause.

[Roland Slugg]

Mixed bag

One big advangtage is that the Roth 401(k) has no income ceiling, so everyone is eligible regardless of his AGI. Some might also regard as a benefit the ability to avoid having a small account somewhere, with its attendant fees and management hassle.

A disadvantage is that Roth 401(k) accounts are subject to the minimum distributions rules at age 70-1/2, although this can be avoided by rolling the account over to a regular Roth IRA prior to that time.

The Roth 401(k) provision is set to expire in 2010, so some employers and eligible participants may see that as rendering the whole thing to be not worth the trouble.

[Unregistered]

The Roth 401(k) provision is set to expire in 2010, so some employers and eligible participants may see that as rendering the whole thing to be not worth the trouble.

I believe the Pension Protection Act made Roth 401(K) plans permanent.

New York Enrolled Agent

[sea-tax]

I believe the Pension Protection Act made Roth 401(K) plans permanent.

New York Enrolled Agent

I think you are correct. NYEA, Question still remains is it a good idea to recommend this to clients?