A Roth 401(k) is a retirement savings account that combines features of a traditional 401(k) plan and a Roth IRA. A Roth 401(k) is offered by employers as part of their retirement benefits package.
A Roth 401(k) works by allowing individuals to make after-tax contributions to their retirement savings account, which can then grow tax-free and be withdrawn tax-free during retirement.
Eligibility for a Roth 401(k) is determined by the employer offering the plan, and any employee who meets the employer's criteria can participate. This plans do not have income restrictions.
For the year 2023, the annual contribution limit for individuals under 50 years old is $22,500, and individuals aged 50 and older can make an additional catch-up contribution of $7,500.
To qualify for tax-free withdrawals from a Roth 401(k), you generally need to be at least 59½ years old and have held the account for at least five years.
Roth 401(k) accounts are subject to RMDs starting at age 73, or at age 70½ if you turned 70½ before January 1, 2020. The SECURE 2.0 Act of 2022, eliminates RMDs for Roth plans starting in 2024.
Benefits of Roth 401(k) include, the potential for tax-free retirement withdrawals, flexibility in contributions & the absence of required minimum distributions during the account holder's lifetime.