Offering Roth 401Ks

My employees prefer to have a retirement saving plan that lets them withdraw funds tax free? Can I replace my traditional 401K with a Roth 401K? Home foods company owner Ericka Bryand, Augusta, Maine

The Roth 401K does let your employees withdraw their money without having to pay taxes on them. The contributions go into this plan from taxed dollars which is why this is possible. However, the law does not allow you to set up only a Roth 401K for your small business even if your employees prefer this plan.

As the employer, you have to establish a traditional 401K plan first for your home foods business employees. The Roth 401K can be offered as a part of this traditional 401K plan. It is not possible to have the Roth as a stand alone employee benefit plan for your business. If you have an existing 401K plan, you can add the Roth to it and inform your employees about this addition so that they can take advantage of the tax free withdrawals feature.

Make sure your employees know that while they can participate in a Roth IRA that is self established, they can contribute to a Roth 401K only if you offer one to them. But, if your employees are not likely to be in a higher tax bracket at retirement age, it is better for them to invest in a traditional 401K plan. For comprehensive information on 401Ks and the various options you have with them you can visit sites like www.doityourself401k.com. Here you will find information about vesting, contributions, and also links to DIY 401K suites that make setting up and managing these plans easy.

About Elliot Earl, Director, Pension Trade Association
Director, Pension Trade Association Founded in 1982, the Pension Trade Association [California Domestic Nonprofit Corporation #C1629080] is dedicated to helping workers save for their retirement through expanded coverage of 401k -type defined contribution pension plans.

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