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Question 12

“A Roth 401(k) combines elements of an employer-sponsored 401(k) with the Roth tax treatment familiar from IRAs. In plain terms, Roth-style contributions are made with after-tax dollars: you pay tax on the money now so that qualified withdrawals in retirement can be taken tax-free. This structure changes the trade-off between paying tax today versus later and is useful for people who expect higher tax rates in retirement or who value tax-free distribution flexibility later on. Plans that offer a Roth option let participants choose whether some or all of their contributions go into the Roth side instead of the pre-tax side; the employer match, however, is typically contributed on a pre-tax basis unless plan rules specify otherwise. The question below checks whether you can identify the basic Roth-401(k) characteristic in straightforward language.”

Which statement correctly describes a Roth 401(k)?

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By Wise Wallet

Wells Fargo was founded in 1852 and used stagecoaches to carry gold, mail, and cash across the American West.