What is the difference between a Roth IRA and a Roth 401K? Are the tax implications still the same?

Similar questions: difference Roth IRA 401K tax implications.

Tax implications are the same. But,You can put more money in a Roth 401k than a Roth IRA. Unlike Roth IRAs, where individuals who earn more than a certain dollar amount aren’t allowed to contribute, you can make Roth contributions, regardless of your salary level, as soon as you’re eligible to participate in the plan.

And while a 401(k) plan can require employees to wait up to one year before they become eligible to contribute, many plans allow you to contribute beginning with your first paycheck. There’s an overall cap on your combined pretax and Roth 401(k) contributions. In 2009, you can contribute up to $16,500 of your pay ($22,000 if you’re age 50 or older) to a 401(k) plan.

You can split your contribution any way you wish. For example, you can make $9,500 of Roth contributions and $7,000 of pretax 401(k) contributions. It’s up to you.

But keep in mind that if you also contribute to another employer’s 401(k), 403(b), SIMPLE, or SAR-SEP plan, your total contributions to all of these plans--both pretax and Roth--can’t exceed $16,500 in 2009 ($22,000 if you’re age 50 or older). It’s your responsibility to make sure you don’t exceed these limits if you contribute to plans of more than one employer. Your participation in a Roth 401K has no impact on your ability to contribute to a Roth IRA.

You can contribute to both if you wish (assuming you meet the Roth IRA income limits). You can contribute up to $5,000 to a Roth IRA in 2009, $6,000 if you’re age 50 or older (or, if less, 100% of your taxable compensation). Because your Roth 401(k) contributions are made on an after-tax basis, they’re always free from federal income tax when distributed from the plan.

But the investment earnings on your Roth contributions are tax free only if you meet the requirements for a "qualified distribution. " In general, a distribution is qualified only if it satisfies both of the following: It’s made after the end of a five-year waiting period. The payment is made after you turn 59½, become disabled, or die.

The five-year waiting period for qualified distributions starts with the year you make your first Roth contribution to your employer’s 401(k) plan. Like pretax 401(k) contributions, your Roth 401(k) contributions and investment earnings can be paid from the plan only after you terminate employment, incur a financial hardship, attain age 59½, become disabled, or die. Also, unlike Roth IRAs, you must begin taking distributions from a Roth 401(k) plan after you reach age 70½ (or in some cases, after you retire).

But this isn’t as significant as it might seem, since you can generally roll over your Roth 401(k) dollars into a Roth IRA if you don’t need or want the lifetime distribution. Here is a table of comparisons. Roth 401(k) Roth IRA Maximum contribution (2009) Lesser of $16,500 or 100% of compensation Lesser of $5,000 or 100% of compensation Age 50 catch-up (2009) $5,500 $1,000 Who can contribute?

Any eligible employee Only if under income limit Age 70½ required distributions? Yes No Potential matching contributions? Yes No Potential loans?

Yes No Tax-free qualified distributions? Yes, 5-year waiting period plus either 59½, disability, or death Same, plus first time homebuyer expenses (up to $10,000 lifetime) Nonqualified distributions Pro-rata distribution of tax-free contributions and taxable earnings Tax-free contributions distributed first, then taxable earnings Investment choices Limited to plan options Virtually unlimited Bankruptcy protection Unlimited At least $1,095,000 (total of all IRAs) Be careful how much you set aside into either of the plans. In the current economic situaiton, if you need money in an emergency, you may find the only funds availaibe may be in a retirement plan.

Trying to access that money may result in a penalty.

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I WANT TO OPEN A ROTH IRA ACCOUNT FROM MY PREVIOUS 401K. CAN I DIVIDE THE AMOUNT, SAY 1/3 FOR EACH YR. X 3 YRS.?

I have $20,000 in a company 401K. I am resigning shortl. Can I trans into an IRA (Roth or Trad)?

What's the tax implic's.

I just retired and have 80,000 in my 401k. If I roll it over to a Roth IRA, Do I pay taxes on it at that time?

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