Income tax rates have been cut, the marriage
penalty done away with, and the "death tax" is also on a path to
no more. All of this is a result of the Bush administration's
Economic Growth and Tax Relief Reconciliation Act which was passed
by a Republican congress in 2001. Another provision of that act
goes into effect on January 1st, 2006, a hybrid of a traditional
401k and a traditional Roth IRA called the Roth 401k.
Yet another employer sponsored savings plan,
the new Roth 401k works in almost the same way as a traditional
401k plan. Workers invest a portion of their income into a fund
along with contributions from their employer (if any). The
difference is that the traditional 401k is funded with "pre-tax"
dollars and the Roth 401k plan uses "after-tax" dollars. However,
with the Roth 401k, withdrawal of your money at retirement will be
tax free like a Roth IRA. The traditional 401k plan defers the tax
owed during your career until retirement.
Although it may sound like the best of both
worlds, it is important to note that no employer is required to
offer this new Roth 401k plan. In fact, a recent survey by
employee benefits consulting firm Hewitt and Associates found that
only 31 % of employers currently offering the traditional 401k
plan are considering implementing the new Roth 401k.
There's
a New 401k Coming to Town