Your Roth 401(k) Selections
A Roth 401(k) works like a traditional 401(k) plan, in that contributions are made through paycheck deferrals and assets expand oned within the plan are tax deferred until they are withdrawn in retirement. However, a Roth 401(k) plan is a post-tax privilege; contributions provide no upfront reduction to taxable income. Instead, Roth 401(k) contributions and earnings are tax free when charmed out after age 59½.
Once you leave your job with an employer offering a Roth 401(k) plan, you potentially have four way outs about what to do with your plan: You can maintain it as is with the plan sponsor, transfer it to a new employer plan, come in it over into an individual Roth IRA, or take a lump-sum cash distribution.
Key Takeaways
- If you leave your job, you can still profess your Roth 401(k) account with your old employer.
- Under some circumstances, you can transfer your Roth 401(k) to a new one with your new corporation. You can also choose to roll over your Roth 401(k) into a Roth IRA.
- You can cash out your Roth 401(k) and experience it as a lump-sum payment, but this may have tax implications and penalties.
1. Leave It
The majority of Roth 401(k) plan sponsors put up with you to maintain your account with them after leaving your job. However, you no longer have the option to have a hand in directly to the plan, and you are limited to the investment options the plan provides.