Roth 401[K]: A Comprehensive Guide to Its Legal Definition and Features
Definition & Meaning
A Roth 401(k) is a retirement savings plan that combines features of both a Roth IRA and a traditional 401(k) plan. Employees can make contributions to this account on a post-tax basis, meaning they pay taxes on their contributions upfront. Once they retire, they have the option to roll over their Roth 401(k) contributions into a Roth IRA account, allowing for tax-free withdrawals in retirement. This type of account became available to employees after December 31, 2010.
Legal Use & context
The Roth 401(k) is primarily used in the context of retirement planning and employee benefits. It is relevant in areas of tax law and employment law, particularly regarding employer-sponsored retirement plans. Users can manage their contributions and withdrawals through forms and procedures that may be facilitated by legal templates available from resources like US Legal Forms.
Real-world examples
Here are a couple of examples of abatement:
Example 1: Jane works for a company that offers a Roth 401(k) plan. She decides to contribute $5,000 per year from her salary after taxes. Upon retiring, she rolls her contributions into a Roth IRA, allowing her to withdraw funds tax-free.
Example 2: John contributes to his Roth 401(k) for 20 years. When he retires, he can access his funds without incurring additional taxes, as he already paid taxes on his contributions. (hypothetical example)