Wednesday, November 02, 2005

Impact to Retirement Plans of New Roth 401(k)

The above link will take you to a summary of the study with a link to the full study. The study points to the Roth 401k/403b as a new benefit available for employers to adopt beginning January 1, 2006 and shows how it can benefit employees.

I believe the Roth 401k/403b is a great option for a lot of people, not just the highly paid. I think a new concept in investing is beginning to take shape, that of tax diversfication and the Roth is at the center of it.

Tax Diversification refers to diversifying your investments into accounts other than just pre-tax, tax-deferred options. You should aim to have money in tax-deferred accounts, but you should also try to accumulate money in tax-free accounts, such as Roth IRA's and 401(k)/403(b)'s, this gives you the ability manage your taxes better in retirement in order to minimize what you owe.

I have a few interesting strategies for the Roth 401k/403b for people who have inherited money or expect to inherit money in the future to take a look at.