Rules For A 401k PlanThere are some differences between a Roth Ira and a Roth 401k account. For example, your contribution level in a Roth Ira for 2006 was $4000, $5000 if your're over 50. Your contribution level for a Roth 401k is $15,000, $20,000 if you're over 50. This is the same contribution level as for a traditional 401k. The income limit of $95,000 for a full contribution to a Roth Ira does not apply to the Roth 401k plan. You can choose this alternative without worrying if your income will be over the limit.
Withdrawing from your pension savings is not adviseable and you should plan so that it is the last resort. However, emergencies do happen and if you have a Roth Ira, it is a simple matter to withdraw money from it. Keep in mind that if you don't meet all the criteria, you may be charged an early withrawal fee of 10% and if you withdraw more than your original contribution you will end up paying tax on any earnings. The same is not true of a Roth 401k plan. You probably will not be able to take money out of this plan although your employer may have a plan in place to allow you to borrow the funds. There is a thing called the 'Minimum Distribution Rule'. This is a rule that mandates that you must withdraw a certain amount from your Iras at a certain age. The Roth Ira does not have such a rule, but the Roth 401k plan does. This is not really a problem however, because if you do not need the money when you retire, you can roll your Roth 401k over into a Roth Ira. We'll cover this later. To be able to withdraw your money without paying an early withdrawal fee of 10%, the Roth 401k plan must be 5 years old. To withdraw money and not pay any taxes on it, you must be at least 59.5 year of age 'and' the account must be 5 years old. Once you decide that you want your contributions to go to a Roth 401k account that decision is irrivocable for any contributions that you have already made. You can however, decide that further contributions should go to another plan. The age of your 401k plan is the 1st day of the 1st year in which you make your 1st contribution. Even if you don't start to make contributions until December 30, you will be considered to have had your plan for one year. In other words, your plan begins on January 1st of that year. |