Welcome to Scribd. Sign in or start your free trial to enjoy unlimited e-books, audiobooks & documents.Find out more
Download
Standard view
Full view
of .
Look up keyword
Like this
1Activity
0 of .
Results for:
No results containing your search query
P. 1
Benefits Consuling Group Fall 2005 Newsletter

Benefits Consuling Group Fall 2005 Newsletter

Ratings: (0)|Views: 12|Likes:
Published by SocialGeekMe
THE BENEFITS CONSULTING GROUP
53 W. Jackson Blvd., Suite 1651 Chicago, IL 60604 (312) 427-9140 www.benefitsconsulting.net

NEWSLETTER

Fall 2005, Volume 1 Issue 1

Inside this issue

Get Ready for the Roth 401(k)
Get Ready for the Roth 401(k) . 1 2006 Plan Limits Announced ... 1 Calendar Year Plans ................. 2

by Lori Mayer Effective January 1, 2006, 401(k) plan sponsors may allow participants to designate some or all of their traditional 401(k) contributions as Roth 401(k) contribution
THE BENEFITS CONSULTING GROUP
53 W. Jackson Blvd., Suite 1651 Chicago, IL 60604 (312) 427-9140 www.benefitsconsulting.net

NEWSLETTER

Fall 2005, Volume 1 Issue 1

Inside this issue

Get Ready for the Roth 401(k)
Get Ready for the Roth 401(k) . 1 2006 Plan Limits Announced ... 1 Calendar Year Plans ................. 2

by Lori Mayer Effective January 1, 2006, 401(k) plan sponsors may allow participants to designate some or all of their traditional 401(k) contributions as Roth 401(k) contribution

More info:

Published by: SocialGeekMe on Feb 17, 2010
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

02/17/2010

pdf

text

original

 
 Get Ready for the Roth 401(k)
by Lori Mayer 
53 W. Jackson Blvd., Suite 1651Chicago, IL 60604(312) 427-9140www.benefitsconsulting.net
Fall 2005, Volume 1 Issue 1
NEWSLETTER
Inside this issue
THE
BENEFITS
CONSULTING GROUP
 
Get Ready for the Roth 401(k) .12006 Plan Limits Announced ...1Calendar Year Plans.................
2006 Plan Limits Announced
by Larry Shippee 
Effective January 1, 2006,401(k) plan sponsors may allowparticipants to designate some or all of their traditional 401(k)contributions as Roth 401(k)contributions. This is increasinglygenerating interest and questions.We’re ready to help by providinginsightful information about theRoth 401(k) contribution in thisarticle.
What is a Roth 401(k)contribution and how is it different from the traditional 401(k) contribution? 
The traditional 401(k) contributionis made with pre-tax dollars. Theaccount’s gains are also tax-deferred. However, you owetaxes on all money that iswithdrawn. A Roth 401(k)contribution will be made with after-tax dollars and the money growstax-free. Therefore, no tax is paidwhen the funds are taken out.
continued on page 2 
On October 14, 2005 the IRS announced cost of living adjustments to the variousdollar limits that are applicable to qualified plans. The 401(k) limit was raised to$15,000 ($20,000 with catch up), the defined contribution limit - $44,000 and thecompensation limit - $220,000. On page 4 is a complete list of the limits with acomparison to prior years.
list on page 4
In a nutshell, with the traditional401(k) option, money withdrawnfrom the plan is taxed. With theRoth option, the contributions aretaxed.
What are some of theadvantages to offering the Roth401(k) to plan participants? 
 Younger Employees
Participants who are currently ina lower tax bracket and expecttheir income to increase maywant to consider paying taxesnow rather than later.
Highly CompensatedEmployees
- Single employeesthat made over $110,000 and
 
 
Fffffffffssf 
Calendar Year Plans
By Matthew Puetz 
 
“Rolling theRoth 401(k) toa Roth IRA is away of avoiding theminimumdistributionrequirement”
married couples that had a combinedincome of over $160,000 are ineligibleto contribute to a Roth IRA. However,they may contribute Roth 401(k)contributions because there are noincome limits on the 401(k) Plan.
Plan limits
– For 2006, the Roth IRAlimit is $4,000 ($5,000 if age 50 or over).The Roth 401(k) limit is the same as thetraditional 401(k) limit which is nearlyfour times as much. For 2006, the401(k) limit is $15,000 ($20,000 if age50 or over).
Flexibility in tax planning
 –Participants will have the flexibility tosplit their contributions between atraditional 401(k) and a Roth 401(k).During years when the income tax rateis high, retired participants can withdrawfrom their Roth 401(k). When the taxrates are low, participants can withdrawfrom their traditional 401(k) account.
Avoid Required MinimumDistributions
 – Since Roth IRA’s arenot subject to Required MinimumDistributions at age 70 ½, rolling theRoth 401(k) to a Roth IRA is a way of avoiding the minimum distributionrequirement.
list on page 3
Employers sponsoring calendar year plans will be receiving the 2005anniversary notice data requestduring the second half of December 2005. The purpose of theanniversary notice is to collect therelevant data that we will use tocomplete the 2005 compliancetesting, contribution allocation andpreparation of Form 5500. This year we are encouraging all employers tosubmit the employee census data inelectronic format, such as aMicrosoft Excel spreadsheet. Thiswill enable us to complete thecontribution calculations andcompliance testing in a timelier manner. Details of the electronicsubmission method will be outlinedin the anniversary notice. We askthat the requested information bereturned to us as soon as possible.Please contact us if you needassistance in completing theanniversary notice.
What are the disadvantages? 
Separate Accounting
– A littlemore work is involved on the recordkeeping side to make sure Roth401(k) contributions are notcommingled with any pre-taxmoney in a participant’s account.
Payroll
– The payroll system mustbe able to correctly tax the Roth401(k) contributions, but not thetraditional 401(k) contributions.
5 Year Wait
– If a participant with aRoth 401(k) account takes adistribution during the initial 5 year period, the participant’s earningswill be taxed.
Get Ready for the Roth 401(k) (continued from page 1)
The Benefits Consulting Group, Inc.
 
Get Ready for the Roth 401(k) (continued from page 2)
“Adopting theRoth 401(k)option may bea tremendouschance for youand your employees toadd toretirementsavings”
Here is a summary of the Roth 401(k) and traditional 401(k):If you now offer a 401(k) for yourself and your employees, adopting the Roth 401(k) optionmay be a tremendous chance for you and your employees to add to retirement savings.
Traditional 401(k) Roth 401(k)
Funding Funded with pre-tax dollarsFunded by after-tax dollarsMatchingContributionsAllowed Employer matching of Roth 401(k) contributions isallowed but not as an after tax contribution. Theemployer match is treated the same as it is for pre-tax contributionsContributionLimits$15,000 ($20,000if age 50 or older)$15,000 ($20,000 if age 50 or older); if participantmakes a combination of Roth 401(k) and pre-taxelective deferrals, total cannot exceed($15,000/$20,000)InvestmentEarningsTax-deferredearningsTax-free earningsTaxes Pay taxes later Pay taxes nowAccess toMoneyCan get access tomoney whenleaving a job,disabled, die or (if plan provides)reach age 59 ½Subject ot the same restrictions as traditional401(k)Tax-FreeDistributionNot Applicable 2 conditions must be met:1) Distribution must be a “qualified distribution”-attainment of 59 ½, death or disabled AND2) Special 5-year-rule – contributions must remainin the plan for 5 years of the first Roth 401(k)contribution to receive the tax-free advantageRollovers Can be rolled over into a traditionalIRACan be rolled over into a Roth IRA
[ Fall 2005, Issue 1] 

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->