A Few Practical Things to Know About Roth Contributions to a §401(k) Plan:
- You probably already know that §401(k) salary deferrals designated as Roth contributions are included in your taxable income just like your W-2 wages and salary.
- You also probably know that the earnings on a Roth contribution account in the §401(k) plan accumulate tax-free within the account, and that the distributions from the account are also tax- free if you have both attained age 59 1/2 and had the account for at least 5 years.
- You might not know that if you roll your §401(k) Roth account over to a Roth IRA, you have a new 5 year holding period requirement to achieve Roth treatment, unless you already have a Roth IRA which has some prior years which can be counted toward the 5 years.
- You can structure investments within your §401(k) Roth account to hold stock of the employer who sponsors the §401(k) plan and other private ventures, including active businesses. There are other strategies and techniques to maximize earnings within your §401(k) Roth account without violating IRS qualification and prohibited transaction rules.
