New Tax-saving Opportunity for Your 401(k) Retirement Plan

Your company retirement plan has an exciting new feature that may better help you plan for retirement. The feature is called a “Roth
401(k)” and it may result in additional tax savings for certain plan participants.

Contributions to your retirement plan have always been tax favored. That’s probably one of the reasons you participate in the plan. Because your contributions are made “pretax,” you’re not immediately taxed on them. That means, if you’re in a 25% tax bracket and you contribute $100 to the plan, the immediate cost of your contribution is only $75. Why? Because you would otherwise have paid $25 in taxes on that $100.

The new Roth 401(k) provides an alternative tax benefit to this “traditional” model. With Roth, you secure the tax benefit when you take money out of the plan. Right now, when you reach retirement and start withdrawing money from the plan, your pretax contributions and any earnings will be taxed as ordinary income. With the Roth option, you’ll be able to withdraw money tax free. If the $100 you put in the plan in the above example has grown to $125, you can take the entire amount out tax free. But there’s a trade-off. Contributions to a Roth 401(k) are “after tax” — you don’t get the tax benefit when you make your contributions.

So, you have a choice. Traditional or Roth? The purpose of this letter is to provide you with more information about this planning option so that you can make the best decision. And, if you’re really concerned about a comfortable retirement, see the Growing Your Nest Egg section for an even better idea on how to get there.

Important
information
about the
Roth 401(k)
option.