Roth 401k Overview

By Kaye A. Thomas
Updated January 26, 2008

Tax-free retirement savings come to the 401k/403b world.

As briefly as possible, a Roth 401k or 403b is an account that functions pretty much like a Roth IRA. You get no deduction when the money goes in, but you'll have a huge advantage later because you're building an account where earnings will be permanently tax-free. For most people who are eligible, the Roth 401k or 403b will be preferable to a traditional account.

Am I eligible?

You're eligible if you participate in your employer's 401k or 403b plan and your employer has chosen to offer these accounts. Unlike the Roth IRA, you don't lose eligibility when your income grows too large.

What if my company doesn't offer Roth accounts?

In that case you're out of luck, at least for now. It seems likely that many companies that didn't gear up for the 2006 starting date of these accounts will add this feature in subsequent years.

How do I participate?

These accounts work the same as traditional accounts, except now your employer will provide a form on which you can designate some or all of your 401k or 403b contributions to go into a Roth account.

Will my company provide matching contributions?

If you choose a Roth account, you'll get the same matching contributions you would have received if you contributed to a traditional account. The matching contributions will still go into a traditional account, even if your own contributions go into a Roth account.