The NEW Roth 401k Plan
There’s a new retirement plan soon to be available. It’s called a Roth 401k. President Bush brought this about in his 2001 tax cuts. This is a combination of two retirement funds - a 401k and a Roth IRA. But what does it mean?
Your 401k plan is pretax money set aside to grow as an investment. Your employer takes pretax money out of your check and allows you to direct the funds usually into mutual funds. 401k’s have another advantage - since it’s pretax money you take out of your check, your net pay is lowered, reducing the amount of taxes you pay. When you retire, then you draw out of your 401k what little you need and pay the taxes on it. When you retire, your income stream is gone, and so is your tax bracket. As you draw out your money from your 401k, then you hopefully enter a relatively low tax bracket and pay little on the proceeds. 