Choosing a Small Business Roth 401K

Are there Roth 401Ks that let me and my employees withdraw money tax free? Can I opt for one for my start up graphics studio?- Benita Millikin, Andover, Kansas

The law allows businesses to set up Roth 401Ks for employees. These plans do give you the advantage of being able to withdraw the funds in the account completely tax free. But what you need to understand is that a Roth does not let you entirely get away from paying tax on the contributions. What happens with Roth 401Ks is that the contribution is taken out of your post tax dollars. That is, unlike a traditional 401K where deductions are made before tax calculation, a Roth 401k contribution is made after tax is paid on your paycheck. Because the contribution to this account is made from taxed funds, you avoid paying tax a second time at withdrawal time.

If your employees believe that they will fall in the same or higher tax bracket in their retired years, then a Roth 401K is the best employee benefit plan you can offer to them. Given that these plans have substantially bigger contribution limits as compared with IRAs makes them even more attractive to employees.

If you have doubts about the degree of difficulty you will face in managing a Roth 401K, you can tie up with a comprehensive software suite like http://small401k.com/ that offers these plans in addition to traditional ones. Using a DIY software like this helps you track contributions, assess account balances, manage investments and keep record of withdrawals easily and accurately.