The Key Differences Between Roth IRAs and Roth 401(k)s & Why They Matter

You are receiving this email because you signed up to receive Bob Carlson's free e-letter Retirement Watch Weekly, or you purchased a product or service from its publisher, Eagle Financial Publications. [Carlson's Retirement Watch Weekly] [Retirement Reports](www.retirementwatch.com/retirement-resources/) [Retirement Articles](www.retirementwatch.com/retirement-articles/) Brought to you by Eagle Financial Publications The Key Differences Between Roth IRAs and Roth 401(k)s & Why They Matter by Bob Carlson Editor, [Retirement Watch]( 09/22/2024 SPONSORED [Ex-Wall Street Insider: Don't make this election mistake]( [image]( A lot of Americans are gearing up to make a big mistake going into the presidential elections... This has nothing to do with who you're planning to vote for... Instead, it has far more serious consequences for your personal prosperity. [Click here to learn more.]( [CLICK HERE...]( Fellow Investor, [Bob Carlson]Many employers now offer Roth versions of their 401(k) plans. Though many people believe Roth IRAs and Roth 401(k)s (known formally as designated Roth 401(k) plans) are identical, there are important differences between the two types of retirement plans. You likely already know the basic differences between Roth-type accounts and traditional IRAs and 401(k)s. In the traditional accounts, most contributions are either deductible (IRAs) or not included in gross income (401(k)s). Distributions from the traditional accounts are taxed as ordinary income unless they are distributions of after-tax money. Distributions of income from Roth accounts are tax-free after the five-year waiting period. But Roth IRAs and Roth 401(k)s aren’t exactly the same, and you should know the differences. The knowledge will help you decide whether to open a Roth 401(k) or Roth IRA. It also might influence a decision of whether to keep money in a Roth 401(k) or roll it over to a Roth IRA. The contribution maximums of the two accounts are different. The maximum IRA contribution is $6,000 in 2022 with an additional $1,000 catch-up contribution for those age 50 or older. But the maximum deferral to a 401(k), whether Roth or traditional, is $20,200 in 2022 with an additional $6,500 catch-up contribution allowed for those 50 and older. There also is an income limit for contributions to Roth IRAs. The maximum contribution begins to be reduced for a single taxpayer when adjusted gross income exceeds $129,000 and is reduced to $0 when adjusted gross income exceeds $144,000. For married couples, the phaseout begins at $204,000 and ends at $214,000 of adjusted gross income. There are no income limits for 401(k) contributions. Employers can make matching contributions to Roth 401(k)s just as they can with traditional 401(k)s. [What Investors Can Do If They’re NOT Ready for Retirement]( [image]( Thanks to a little-known loophole in the law, investors can collect between $2,500 and $3,900 per month for the rest of their lives, tax free, even if they currently have ZERO saved for retirement. It’s a retirement strategy unknown to most financial planners, yet it’s 100% legal and approved by the IRS. One famous investor used this secret strategy to turn just $2,000 into $5 billion. [Click here to find out more.]( [CLICK HERE...]( The maximum of combined employer and employee contributions is the same for both traditional 401(k) and Roth 401(k) accounts, $61,000 or 100% of the employees’ compensation (whichever is lower) in 2022 or $67,500 for those 50 and older. But employer matching contributions to a Roth 401(k) are of pre-tax dollars. They won’t be included in your gross income and will be placed in a traditional 401(k) account. Distributions from that account will be taxed as ordinary income. Most Roth IRAs can be invested in any publicly traded investment. But Roth 401(k)s can be invested only in the investment options made available by the plan. A Roth 401(k) might have a brokerage window option that allows the account to be invested in almost any publicly traded investment. Many people don’t realize there’s a major difference in required minimum distributions (RMDs). There are no RMDs for original owners of Roth IRAs. But there are RMDs for Roth 401(k)s starting at age 72, unless the account owner still is working for the employer and owns less than 5% of the employer. The RMDs from Roth 401(k)s are tax free, but you must begin taking them. Because of the RMD requirement for Roth 401(k)s, you might want to have a Roth 401(k) while working but roll it over to a Roth IRA before age 72. You can take tax-free loans from a Roth 401(k) under certain circumstances, but you can’t take a loan from a Roth IRA. You can only take distributions from a Roth IRA, and there will be a 10% penalty if it is taken before age 59½ – unless you qualify for one of the exceptions. To a better retirement, [Bob Carlson] Bob Carlson Editor, Retirement Watch Weekly Editor’s Note: Converting a traditional IRA to a Roth IRA is one of today's most powerful legal loopholes in retirement planning. Yet so little information is out there for the public to understand. That’s why I’ve created The Retirement Watch IRA Conversion Calculator. It will help you figure out how the different variables may change the results of a conversion – and lets you customize estimates for your unique situation or a range of possible situations. It takes careful analysis to make the right choices, and my calculator is specifically designed to help you make these important decisions. [Click here now to get yours.]( SPONSORED [This A.I. Spots Trades Like a Spy, See it Live]( [image]( Cutting-edge A.I. technology just pinpointed one asset that could outperform everything else in the market. It’s a huge week for Wall Street, but an even bigger week for your portfolio...if you know how, and where to look. Be curious. [This is how A.I. forecasting is beating the markets.]( [CLICK HERE...]( Want More Retirement Advice? Check out my website, [RetirementWatch.com](, where you’ll find hundreds of free articles covering every aspect of retirement planning. Popular Posts: [The Overlooked Retirement Time Bomb]( [Understanding Rules of IRA Contributions]( [Strategies to Reduce Alternate Minimum Tax]( [Avoiding Expensive IRA Mistakes]( New to the Retirement Watch Community: SeniorResource.com Seeking a brilliant fall garden? Here are three plants that can add bursts of color to your surroundings. These three plants typically do well after summer’s intense heat is over. [Click here to learn all about them.]( About Bob Carlson: [Bob Carlson]Robert C. Carlson is the author of the books The New Rules of Retirement and Retirement Tax Guide, editor and investment director of the popular retirement newsletter, Retirement Watch, and editor of the free weekly e-letter, Retirement Watch Weekly. Bob is a frequent speaker at investment conferences around the country, and you can also hear Bob as a featured guest on nationally-syndicated radio shows, such as The Retirement Hour, Dateline Washington, Family News in Focus, The Michael Reagan Show, Money Matters and The Stock Doctor. About Us: Eagle Financial Publications is located in Rosslyn, VA. – Blocks from the Capitol. Our products have been helping investors build their wealth for several decades. Whether you’re a long-term investor or short-term trader, you’ll find the right strategy for you, including how to earn more steady income to spend now, preserve and grow your capital to enjoy later, and whatever other investment goals you have. Visit Our Websites: - [StockInvestor.com]( - [DividendInvestor.com]( - [DayTradeSPY.com]( - [CoveredCall](.com - [MarkSkousen.com]( - [GilderReport.com]( - [BryanPerryInvesting.com]( - [JimWoodsInvesting.com]( - [InvestmentHouse.com]( - [RetirementWatch.com]( - [SeniorResource.com]( - [GenerationalWealthStrategies.com]( - [[YouTube] Visit our YouTube Channel - Eagle Investing Network]( To ensure future delivery of Eagle Financial Publications emails please add financial@info2.eaglefinancialpublications.com to your address book or contact list. This email was sent to {EMAIL} because you are subscribed to Dividend Investor Daily. To unsubscribe from this list please click [here](. To stop receiving emails simply click [here](. If you have questions, please send them to [Customer Service](mailto:customerservice@eaglefinancialpublications.com). View this email in your [web browser](. Legal Disclaimer: Any and all communications from Eagle Products, LLC. employees should not be considered advice on finances. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized advice on finances. Salem Media Group - Eagle Financial Publications | 1735 N Lynn St, Suite 500, Arlington, VA 22209-2016 [Link](