Hey Tuck,

FYI, the AGI limits for Roth IRA's don't apply to Roth 401K's. Everyone is eligible for contributions up to 16.5K for a Roth 401K, regardless of income. The only caveat being that a Roth 401K plan must be available.

For high(er) income earners, a Roth 401k is not necessarily the great option it appears to be considering it is after tax dollars.

Rather than contribute the max to a Roth 401K, a blend of elected deferrals to both a traditional 401K and Roth 401K (up to a total of16.5K) may be a better option when one doesn't qualify (due to high AGI) for contributions to a separate Roth IRA.

YITSMV. (Your individual tax situation may vary.)

JS-

 

Good point. That issue wasn't even on my radar. That's a good "problem" to have! And yes, hopefully it won't be too long On a side note, initially I read your screen name not as a winter sport reference, but a Russian name (Fly Twoski). I'm not too smart sometimes.

 

FDX has an "after-tax" plan. Contributions are allowed up to 20% for non highly compensated, and up to 5% for highly compensated employees.

It is part of the PRSP, Pilot Retirement Savings Plan. And, used to be called the OSP, Optional Savings plan. But, they changed it to a much more confusing name: "After Tax Contribution Account".

 

IMHO, you should still look at a roth 401k even if you are a high earner. If you anticipate tax rates in retirement to be higher than they are today, that is one way to shelter some of your retirement savings from uncle sam.

YMMV

Pilot7576

 

It seems to me that the beauty of a Roth IRA is that when you actually start withdrawing monies from it, they are all tax-free. Not just the money you put in along the way, but any growth your fund may have experienced. That is the real advantage. You pay NO tax on any withdrawals. As well, you don't have to start withdrawing your money when you reach 70 & 1/2, which you do with a conventional IRA. As well, I believe that you can pass the entire Roth IRA to your children, and they too won't have to pay any tax when they withdraw funds.

While a Roth seems like a no-brainer, which it really is, if you're heavily invested in a conventional IRA, it will cost you a good amount of money to convert the conventional IRA to a Roth, because you have to pay all the tax, or capital gains your funds have made, since your initial investment. So if you're at the beginning of your career, put as much as you can afford into a Roth, but if you're at the middle or getting toward the end, you might be better off just leaving your money in the conventional IRA. However, you need to realize that taxes will probably go up (to pay for everything our government is spending money on) and so taking a long, hard look at paying the tax and moving to a Roth might be the way to go. Just my opinion.

JJ

 

I tend to agree with you, jetjok. Also there's a lot to be said for the less tangible aspects of retirement, such as peach of mind. Speaking only for myself, I would love to have a bunch of money in Roth accounts when I retire. I could truly enjoy withdrawing money without the strain of handing over a significant percentage to the government.

 

Must be a Georgia thing I looked into converting my traditional IRA to a Roth, but just couldn't get past giving the government so much money. But now is the time to make the transition, because I think you can split the capital gains over the next couple of years.....I'm thinking out to 2012.

JJ

 

Aren't there some income limits for contributing to a Roth IRA? Also, above a certain income level don't you lose the pre-tax contributions for a regular IRA?

 

Vanguard has a calculator that helps you decide about keeping your traditional 401k or converting to the Roth. JJ is pretty much spot on. I looked at it (less than 10 yrs to retire) and it was close to a wash on converting in my case. It's recommended to pay the tax when converting from funds outside the 401k; it's a lot of dough. If you're young and Roth is available; go for it.

Life's a peach!

 

What the? "H" isn't even that close to "e" on the keyboard. I must've been hungry.