Roth 401(K)

Employees should consider making contributions to a Roth 401(K) if their employer allows them to do so. The account is funded by after tax contributions. Since there are no income limitations on making contributions to a Roth 401(K), these provide a good way for high income taxpayers to invest in a Roth IRA without converting a traditional IRA. For 2014, you may contribute up to $17,500 to a Roth 401(K) a traditional 401(K), or a combination of the two. If you are 50 or older, the contribution limit is $23,000 annually If the employer matches the employee contribution, it goes into the traditional 401(K) as a pretax contribution.

Both withdrawals from a Roth IRA and a Roth 401(K) are tax-free if the account has been open at least five years and penalty free if you are at least 59½ when funds are withdrawn. If funds are withdrawn before 59½, there is a 10% penalty assessed on the amount withdrawn.

All eligible employees should consider contributing to a Roth 401(K) to maximize retirement funds that grow tax free and allows withdrawals tax free after five years and not be subject to the 10% penalty if they are at least 59 ½.

Tax Free Rollovers

When an IRA owner withdraws funds, he is entitled to only ONE tax fee rollover within 60 days per year even if he has multiple IRAs. In 2013, a taxpayer withdrew funds from his two IRAs and tried to claim a rollover from each IRA. The IRS disallowed the second roll-over and the taxpayer appealed to the U.S. Tax Court. The Court ruled that he was only entitled to only one rollover and had to choose which one. The Court also held that the second attempted rollover was a taxable distribution.

Exception:

Direct trustee-to-trustee transfers are NOT subject to the 12 month rule because the owner does not receive the withdrawn funds.

In accordance with Circular 230 Disclosure