Question

Read the following problem: Samantha has been working for her employer for a year and is now eligible to participate in the company's 401K plan. Her employer explains to her that the 401K plan has a "Roth" feature, which means that if she defers amounts from her pay to put into the 401K, she can make either traditional contributions or Roth contributions. Which should she do? You should research each option and your response should include the following:

What is the tax implication of each option?

What factors should be considered in deciding which option to take?

Can Samantha do both?

What would you advise Samantha to do, and why?

Using the research skills you have learned, access RIA Checkpoint and research the above questions.

Post your findings on the discussion board.

State the issue

Address each of the questions and include your reasoning for your response

Provide proper tax research citations in your analysis.

Answer 1

• Tax Implication: Roth plan deducts tax before and can be funded with post-tax money. Employee shall not be liable to any tax after the age of 59 1/2 years. However, a person would have to pay taxes and penalty on non qualified amount if he withdraws early.
• However in traditional, taxes would have to be paid once funds are withdrawn.
• A factors which should be considered are age, income group, current position, income growth potential. A person of younger age, lower income group and having good income growth potential should opt for Roth plan, as they may get little less money right now but in the later time they wont have to pay taxes.
• Samantha cannot do both, however contribution from employer of mathcing amount goes into traditional 401k only.
• I advise Samantha to opt for Roth 401k plan because she has just started out carrier and it would be suitable to have tax free savings.