Do you know the benefits of a Roth 401k? In this video, we’re going to take a look at the surprising perks of Roth 401Ks.

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Assumptions:
Start contributing at 25, retire at 65.
Save $23,000/yr + $7,500/yr catch up after 50. (2024 Roth 401K Limits)
8% Avg. Return
.50% Fee
No Employer Match…(read more)

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The Surprising Perks of ROTH 401Ks

When it comes to retirement savings, most people are familiar with traditional 401Ks – but have you heard of ROTH 401Ks? If not, you may be missing out on some surprising perks.

First, let’s explain what a ROTH 401K is. Similar to a traditional 401K, a ROTH 401K is an employer-sponsored retirement savings plan. The difference is that with a traditional 401K, you contribute pre-tax dollars, which means you pay taxes on the money when you withdraw it in retirement. With a ROTH 401K, you contribute after-tax dollars, and you won’t pay taxes on the money when you withdraw it in retirement.

Now that we understand the basics, let’s explore the surprising perks of ROTH 401Ks.

Tax-Free Withdrawals

One of the most significant perks of a ROTH 401K is that your withdrawals in retirement are tax-free. This means that as your money grows over the years, you won’t have to pay any taxes on the contributions or the earnings when you start using the funds in retirement. This can be a massive advantage, especially if you expect to be in a higher tax bracket when you retire.

Flexibility

Another great perk of ROTH 401Ks is that they offer more flexibility when it comes to withdrawals. With a traditional 401K, there are required minimum distributions (RMDs) starting at age 72, regardless of whether you need the money or not. With a ROTH 401K, there are no RMDs, so you can leave the money untouched for as long as you want. This can be helpful if you don’t need the funds right away and want to continue growing your retirement savings.

Tax Diversification

Having a ROTH 401K as part of your retirement savings strategy can provide tax diversification. This means that in retirement, you’ll have a mix of taxable and tax-free income. This can be helpful for managing your tax liability and optimizing your retirement income. For example, if tax rates increase in the future, having tax-free income from a ROTH 401K can provide a valuable hedge against rising taxes.

Estate Planning Benefits

Lastly, ROTH 401Ks can offer estate planning benefits. When you pass away, your beneficiaries will inherit your ROTH 401K tax-free. This can be a significant advantage for leaving a tax-free legacy for your loved ones.

In conclusion, ROTH 401Ks offer surprising perks that can enhance your retirement savings strategy. If your employer offers a ROTH 401K option, it’s worth considering adding it to your retirement portfolio. Be sure to consult with a financial advisor to see if a ROTH 401K is the right fit for your financial goals. With its tax-free withdrawals, flexibility, tax diversification, and estate planning benefits, a ROTH 401K could be a valuable tool for your retirement planning.