A Roth 401(k) is really a fairly new choice that some employers provide together with a conventional 401(k). It is essentially the opposite of a conventional 401(k) strategy – which means you spend the taxes in your contributions, but not your withdrawals. So whilst you do need to fund it with after-tax dollars, the cash grows tax totally free and also you will not need to spend earnings tax on any cash you take out.
What is much more, you do not need to make needed minimum withdrawals (RMDs) from a Roth 401(k) following you turn 70 ?, as you do having a conventional 401(k). You are able to leave your cash to develop tax-free for decades following you attain retirement. The lack of RMDs tends to make Roth 401(k)s handy estate-planning tools for some households.
In case your employer provides each kinds of plans, you are able to divide your savings amongst them – they'll possess the exact same investment choices – but your combined annual contributions can't exceed $17,000 in 2012 ($22,500 for individuals 50 or older).