What Are the Rules for Having a Roth 401k?


Quick Answer

Some of the rules for having a Roth 401(k) are that individuals have to pay taxes on what they contribute, there are no taxes on withdrawals and there are maximum employee and employer contributions. Roth 401(k) accounts don't have any rules on the contributor's income, but there are several rules on when and how distributions are made, notes The Motley Fool.

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Full Answer

Since individuals are required to pay taxes on contributions for each year, those with Roth 401(k) accounts don't benefit from a reduction in taxable income like with traditional 401(k) accounts, warns Fidelity. This rule, however, does mean that the account's funds can increase without further taxation, which is a benefit.

The rules for how much an employee and employer can contribute to the account each year varies by age and year. As of 2015, employees who are under 50 can contribute up to $18,000, while those over 50 can contribute up to $24,000. As of 2015, an employer can contribute up to $53,000 for an employee under 50 and up to $59,000 for an employee over 50, mentions New Direction IRA, Inc.

Rules state that an individual has to make withdrawals of a minimum amount that the Internal Revenue Service sets upon becoming 70 1/2 years old, states The Motley Fool. Not doing so has negative tax implications, including a 50 percent penalty on what that distribution amount should have been.

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