A Roth IRA can be established by a person with earned income. Contributions to a Roth IRA are not deductible from taxable income. However, withdrawals from the Roth IRA will not be taxed if certain conditions are met: an account owner must be at least age 59½, and the account must have been open at least five years.
Roth IRAs differ in this regard from traditional IRAs, where account earnings are taxed upon withdrawal. Another feature of Roth IRAs is that contributions to a Roth IRA may be made after the owner is age 70½ if the owner has earned income.
The Roth 401(k) is a relatively new option for saving for retirement. Beginning January 1, 2006, companies could add a Roth option to their 401(k) plan. Doing so enables employees to make after-tax contributions.
The contribution limit for a Roth 401(k) is the same as the contribution limit to a 401(k) in 2013. The limit is $17,500 plus an extra $5,500 “catch up” amount for those who will be age 50 or older by the end of 2013 ($23,000 total).
If an employee’s company adds the Roth option to its 401(k) retirement plan, the employee can use it regardless of the amount of his or her income. This is different from a Roth IRA that imposes limits on high-income earners.
Distributions from the Roth 401(k) will need to be taken when the owner reaches age 70½. However, it is possible to roll the Roth 401(k) into a Roth IRA and delay the distribution.
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