Even though it's funded with after-tax dollars, a Roth 401(k) account is not immune to taxes and penalties. That's why it's important to know🎐 the rules surrounding withdrawals. Understanding these requirements will keep you from losing part of your retirement savings or scrambling to pay an unforeseen tax penalty.♈ Here's what you need to know to keep your retirement funds safe.

Roth 401(k)s: The Basics

Though not all companies with 澳洲幸运5官方开奖结果🍨体彩网:employer-sponsored retirement plans offer a Roth 401(k), they areܫ becoming increasingly💝 popular.

Unlike a 澳洲幸运5官方开奖结果体彩网:traditional 401(k), contributions are made with after-tax dollars and are not tax-澳洲幸运5官方开奖结果体彩网:deductible. However, you don't pay taxes on withdrawals when you retire. For 2024, you can contribute up to $23,000 per year, increasing to $23,500 in 2025. For 2024 and 2025, there's an additional $7,500 catch-up contribution for those who are 50 or older.

Roth 401(k) Withdrawal Rules

To make a qualified withdrawal from a Roth 401(k) account, you must be at least 59½ years old and the account has to meet the 澳洲幸运5官方开奖结果体彩网:5-year rule.

Withdrawals can also be made if the account holder becomes disabled or passes away; in this case, the funds would go to the 澳洲幸运5官方开奖结果体彩网:beneficiaries of the account.

The terms of Roth 401(k) accounts stipulate that 澳洲幸运5官方开奖结果体彩网:required minim⭕um distributions (RMDs) must begin by age 73, or age 70½ if you reached that age by Jan. 1, 2020. However, under the SECURE 2.0 Act of 2022, RMDs are eliminated for Roth plans starting in 2024, but you still must take RMDs for earlier years if you were required to do so.

Unlike Roth 401(k)s, 澳洲幸运5官方开奖结果体彩网:Roth ಞindividual retirement accounts💫 (IRAs) were never subject to RMDs. Because contributions to a Roth plan are made with 澳洲幸运5官方开奖结果体彩网:after-tax dollars, you do not need to pay income tax on qualified distributions, though you still have to report them to the 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS) on 澳洲幸运5官方开奖结果体彩网:Form 1099-R when filing your taxes.

Unqualified Withdrawals

If a withdrawal is made from a Roth 401(k) account that does not meet the above criteria (that is, you must be at least 59½ and the account must be at least five years old), it is considered early or unqualified. Unqualified withdrawals are subject to 澳洲幸运5官方开奖结果体彩网:income taxes and a 10% IRS tax penalty on some but not necessarily all of the amount you take out.

You can withdraw a sum equivalent to the contributions from a Roth 401(k) without paying a penalty or taxes because Roth contributions are made with after-tax dollars. Any distributed earnings, though, are liable for taxes and penalties.

There is one catch, though. 澳洲幸运5官方开奖结果体彩网:Early withdrawals have to be prorated between (nontaxable) contributions and (taxable) earnings. To calculate the portion of the withdrawal attributable to earnings, simply multiply the withdrawal amount by the ratio of total account earnings to account balance.

For example, if your account balance is made up of $9,000 in contributions and $1,000 in earnings, then your earnings ratio is 10% ($1,000 ÷ $10,000). In this case, a $4,000 withdrawal🐠 would include $400 in🐭 taxable earnings. This $400 would need to be included in your gross annual income reported to the IRS. There would also be a 10% tax penalty on the $400. There are no taxes or fees assessed on the $3,600.

Rolling Over Funds in a Roth 401(k)

You can avoid taxation on your earnings if your withdrawal is for a rollover. If the funds are simply moving into another retirement plan or a spouse's plan via a 澳洲幸运5官方开奖结果体彩网:direct rollover, no additional taxes are incurred.

When you do an indirect rollover, the portion of the distribution attributable to contributions cannot be transferred to another Roth 401(k) but it can be transferred into a Roth IRA. The earnings portion of the distribution can be deposited into either type of account.

Borrowing From a Roth 401(k)

Taking a loan from your account is a way to use the funds for current needs without diminishing your retirement savings. Many 401(k) plans, Roth or traditional, allow for the account holder 澳洲幸运5官方开奖结果体彩网:to take out a loan of $10,000 or 50% of the account balance, whichever is greater, up to $50,000.

Loans must be repaid within five years in generally equal payments made at least quarterly. The benefit is that you are borrowing money from yourself, and all payments and interest charged go directly back into your retirement account. However, failure to repay the loan as stipulated may result in it being considered a taxable 澳洲幸运5官方开奖结果体彩网:distribution. You are also often not permitted to make additional 401(k) contributions until the loan has been paid off.

The Bottom Line

When household bills start piling up or unexpected expenses crop up, reaching into your retirement savings may seem appealing in the short term. Retirement accounts like Roth, traditional IRAs, and 401(k) plans ar𝔍e not designed for easy access, and there are consequences to using money in those accounඣts before you're eligible to do so.

If you raid your retirement funds without knowing the rules, you risk losing part of your savings to penalties and tax payments. A Roth 401(k) account is not immune to this, despite the fact that it's funded with after-tax dollars.