Pre-tax and Roth 401(k)s

Contribution Limit

The contribution limit for both 2009 and 2010 are the lesser of 100% of compensation or $16,500.  The catch-up contribution limit, for individuals who are age 50 or will become age 50 at anytime within the tax year (even if you turn 50 on December 31) for both 2009 and 2010, is $5,500.

The above limits are individual taxpayer calendar tax year limits for all plans in which an individual may participate during any given calendar tax year.  This includes any employee contribution to a 401(k), 403(b), 457, or SIMPLE plan.  Note that the individual, not any of his/her employers, is responsible for tracking the total contributions to all plans to determine if the limit is exceeded in any given calendar tax year.

Who is eligible to contribute to a Pre-tax or Roth IRA?

Individuals who are eligible to participate in their employer’s plan, regardless of their adjusted gross income, are eligible to contribute to a pre-tax 401(k), an after-tax Roth 401(k), or both.  This assumes that the individual is eligible based on the particular employer plan’s eligibility provisions (age 21, and 1 year of service are the most conservative eligibility requirements permitted under current law).  It further assumes that the plan permits both pre-tax and Roth 401(k) contributions (the law permits the employer to offer a pan with a pre-tax 401(k) feature only; however, if the employer’s plan permits after-tax Roth contributions, it must by law, also permit pre-tax 401(k) contributions).

Required Minimum Distributions (RMDs)

Individuals are required to take minimum distributions in accordance with applicable rules from all pre-tax 401(k) and after-tax Roth 401(k) accounts upon attainment of age 70½.  Be mindful that at retirement or separation from service from the employer, one can transfer Roth 401(k) monies to a Roth IRA.  The law now also permits direct transfer of per-tax 401(k) monies to a Roth IRA account in accordance with the applicable rules for Roth conversion.

Pre-tax and Roth 401(k) Distributions

Roth IRA 401k Chart2  iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii
Learn more about Roth 401(k) distribution options

Copyright © 2009 Barry R. Milberg   All Rights Reserved

Leave a Comment, Question or Answer

You must be logged in to post a comment.