If you are going to invest in a 401k, Roth 401k's can present you with some great advantages. Although this is a good option for saving for retirement, many people are confused by this type of account. Here are a few frequently asked questions associated with the Roth 401k. 

Who Can Contribute to a Roth 401k?

In order to contribute to a Roth 401k, you have to work for an employer that offers one. Employers can choose to offer this type of retirement account at their discretion. Unless you are an employee, you will not have access to this type of retirement account. If your employer does not currently offer this type of account, you may ask them if they have a plans for doing so in the future.

How Do the Taxes Work with a Roth 401k?

This type of retirement account has a unique tax situation. You start out by contributing money to the account with after-tax dollars. You can then use that money to invest in the financial markets. The money that you earn from your investments is allowed to accumulate tax-free. Then, when you reach the age of 59 1/2, you can start taking out the money without incurring any tax liability. Therefore, you are essentially getting your taxes paid on the front end of this transaction.

What Are Contribution Limits With the Roth 401k?

Each year, you will be subject to contribution limits with this type of account. You can only contribute the maximum of $16,500 per year to your Roth 401k. Many people wonder if you can contribute $16,500 to this account and to a traditional 401k. This is not the case. You can only contribute a maximum of $16,500 between both accounts.

Are There Income Restrictions?

With the Roth IRA, you have to meet certain income restrictions in order to be able to contribute. Therefore, if you make too much money, you cannot take advantage of this type of account. However, with the Roth 401k, there are no such income restrictions. You should be able to contribute to this type of account regardless of how much money you make.

How Do Employer Contributions Work?

With a 401k account, your employer can make matching contributions into your retirement account for you. With a Roth 401k, they can still do the same thing. However, it works a little bit differently with a Roth 401k. The contributions that are made are done on a pretax basis. These contributions are kept in a separate account and grow independently of your after-tax dollars. Then, whenever you withdraw the money upon retirement, you will have to pay taxes on the contributions.

What Happens If I Leave My Job?

If you leave your job, you will no longer be able to contribute to your Roth 401k. However, you will be able to move the funds from your Roth 401k into a Roth IRA. You can then begin contributing to the Roth IRA at your discretion.

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