How do Roth IRAs and Roth 401(k)s differ?
Like the Roth IRA, the Roth 401(k) provides eligible employees the opportunity to forgo a tax benefit on contributions in exchange for tax-free withdrawals during retirement. Although Roth IRA contributions aren’t permitted if your income exceeds certain limits, Roth 401(k) contributions are allowed regardless of income. So a Roth 401(k) may be especially useful to you and your top-level employees who are ineligible to contribute to a Roth IRA. Another advantage of the Roth 401(k) over the Roth IRA is that you may contribute more to a Roth 401(k). For example, in 2006, you can contribute up to $15,000 to a traditional or Roth 401(k). If you are age 50 or older, your maximum allowable contribution increases, with the $5,000 ‘catch-up’ amount to $20,000 in 2006. You can make contributions to both types of 401(k) plans as long as your total contribution doesn’t exceed the limit. The maximum contribution for the traditional or Roth IRA is only $4,000 ($5,000 for those at least age 50) this
