Starting in January, my company will begin offering Roth 401(k) retirement accounts for employees. Later this month, I will be able to adjust my current contribution amounts to take advantage of tax diversification through the Roth 401(k), but I won’t be able to increase my total contribution if it affects my company stock fund purchases. To increase my total contribution, I will have to wait for another open trading window, which we probably won’t have until next year.
I’m wondering if maxing out my total 401(k) contribution will be an achievable goal for 2008. The government limits total 401(k) contributions for 2008 to $15,500 (plus an additional $5,000 for those over 50 years old). Employer matching contributions, up to 6% of the employee’s salary, are not included in this limit.
I ran a few scenarios using this Roth 401(k) vs. Traditional 401(k) calculator, the results seem to be more favorable to be invested completely in the Roth 401(k), whether my tax rates are higher now or at retirement, if I maximize my contributions from now until retirement. Part of this is likely due to the fact that investment gains are not taxed in the Roth 401(k) as long as funds are withdrawn properly in retirement.
The legislation that created the Roth 401(k) expires in 2010, unless it is extended. I’ll be taking advantage of this account for the next few years.