Why are more businesses offering Roth 401(k)s?

Simply put, more firms are recognizing their advantages – especially when it comes to the retirement planning of professionals, business owners and executives. Your company may offer a Roth 401k option that allows you to contribute after tax dollars that will potentially grow tax-free! If you are a business owner, you may have the flexibility to set up a Roth 401(k) for you and your employees.

Here are six reasons to consider a Roth 401k

   1. Tax-free growth. Roth 401(k) assets grow without being taxed, as employee contributions are made with after-tax dollars. When you withdraw the money in retirement, you don’t pay taxes on it - provided you’ve owned the account for 5+ years and are 59½ or older when you start withdrawing. With this tax-free growth, a Roth 401(k) can help professionals, business owners and executives save more to get their retirement planning back on track.

   2. No income limitations. Income limits prevent high-salaried individuals from having a Roth IRA. There are no income barriers preventing you from having a Roth 401(k).

   3. No required withdrawals. You don’t have to withdraw money from a Roth 401(k) at age 70½, unlike with a traditional 401(k).

   4. Higher contribution limits than a Roth IRA. How much can you put into a Roth IRA? In 2009, the answer is $5,000, $6,000 if you are 50 or older. How much can you put into a Roth 401(k)? Much more. For 2009, the contribution limit is $16,500 ($22,000 for those 50 or older).

   5. A rollover option. If you leave a business where you have a Roth 401(k), you can roll the money over into a Roth IRA to maintain tax-free growth.1

   6. An especially tax-smart move. Keep in mind, the federal government recently decided to spend more than a trillion dollars it didn’t have. Taxpayers will probably bear the cost in the future – particularly the highest-earning taxpayers. The government also needs to fund Social Security and Medicare in coming years. So who knows how high tomorrow’s taxes may be.

Roth 401k and Taxes

What would you rather pay - today’s taxes or tomorrow’s taxes? With all this financial pressure on the government, the consensus is that tax rates will go up. So as you save for retirement, isn’t it wise to have a Roth 401(k) that will let you pay taxes on your retirement savings today, rather than tomorrow?

Join the trend. A 2008 Grant Thornton survey of 186 companies sponsoring retirement plans found that 22% offered Roth 401(k)s, up from 12% in 2007 - and 19% more said they were considering Roth 401(k)s. Employer matches can be made to these accounts with pre-tax dollars.

Is your business offering the Roth 401(k)? It may be time. Owners, executives and professionals are among the highest-earning Americans – the Americans who have the greatest need for their retirement savings to grow tax-free.

This article was written by Jay Peroni, CFP®, who is a public speaker, registered christian financial advisor, and author of The Faith-Based Millionaire. Next month, Jay will be rolling out a new service for faith-based investors at FaithBasedInvestor.com. The site will help Christians incorporate the above 10 important concepts into their financial plans.

• Should you convert your IRA to a Roth in 2010?
• What is an IRA?
• Using a Roth IRA as an emergency fund?

Have you ever seen a tiny house?

Apparently, part of the downsizing movement has helped increase the popularity of Tiny Houses. They range in size from 65 square feet to a few hundred square feet and if you are an average American, you would probably say that is indeed tiny. If the small size weren’t enough of an adjustment, fitting all your possessions into a space that small would even be a challenge for a minimalist. But they have many enthusiasts and the trend seems to be growing.

Most of them are fully functional - including a kitchen, bathroom, living, and sleeping area and as you would expect they make tremendously efficient use of every inch of space. Obviously, this type of living isn’t for everyone, but tiny housers love it because…

• You can move most of them anywhere since they are often wheels
• Tiny house living requires just a fraction of the resources that others use
• There is a lot less to clean!
• How quick could you pay off a mortgage on a 100 sq. ft house?

How about a tour of a tiny house?

Text just doesn’t do the Tiny house justice, you really need to see one to understand…

This one is a bit larger…

Tiny thoughts

I am very intrigued by ideas like this. While I don’t think I will ever do anything that small, I think there is a lot that we can learn from tiny housers. If they really can fit all their possessions into a house that is smaller than my bedroom - shouldn’t I be able to quit complaining that I don’t have enough space?

What do you think? Would you ever consider living in a house like this?

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This is a post that I am particularly excited to write…

A little over a month ago, I wrote about a young couple we know who gave us (sowed) $1000 in obedience to what they felt God was leading them to do. In that article I wrote about how excited we were for them, because we know what the Bible says about sowing and reaping…

“Remember this: Whoever sows sparingly will also reap sparingly, and whoever sows generously will also reap generously.” 2 Corinthians 9:6

“Do not be deceived, God is not mocked; for whatever a man sows, this he will also reap.” Galatians 6:7  

“While the earth remains, seedtime and harvest … shall not cease.” Genesis 8:22

Witnessing the harvest

I’ve noticed in my life that I don’t always have the luxury of seeing both the sowing and the reaping. Every time we sow, it is in faith - I believe what the Bible says about it whether I immediately see the fruit or don’t see it for 20 years. My job is just to give and trust that God will do what He promised.

Rejoicing with the sowers

This last weekend, the husband stopped me and brimming with excitement he told me that they just received a completely unexpected $6000!

I wanted to write about this just to brag on God a little bit. I get so excited seeing people step out in Faith like this couple did, because I consistently see God do awesome things like this. I’ve watched it happen in my life and have witnessed it in the lives of so many others as well. God is faithful.

Giving with the right attitude

Just to clarify for those new to this whole “sowing and reaping” thing - it isn’t a turn-key system where we are taking advantage of God. Giving should be done with right motives - to please and honor God.

But, God did set this system up so that there are rewards for our obedience. One of the benefits is that we have is that when we give, more is given back to us…

“Give, and it will be given to you. A good measure, pressed down, shaken together and running over, will be poured into your lap. For with the measure you use, it will be measured to you.” Luke 6:38

• Keep the Top Up: Materialism and Christianity
• Extravagant Giving
• Tithing alone does not bring financial increase

I have had and loved my Roth IRA over the last few years. I mean, it really is a great deal the government is offering us and I always wonder why more people aren’t taking advantage of it. First you put in after-tax dollars NOW and withdraw it when you retire TAX-FREE. There are some people who might still benefit from using a Traditional IRA (depending on their current and expected tax bracket) but I think the Roth IRA is a good idea for the majority.

As if the tax-free withdrawal wasn’t enough, the ROTH is more generous when compared to the Traditional IRA. One of my favorite things about it is that you can withdraw all of your contributions tax and penalty free. A few years ago, (I don’t remember why) I had some kind of emergency come up that I needed the money so I just withdrew the amount I had contributed to my Roth that year. I didn’t have any tax consequences or penalties to be paid.

Have you ever thought of your Roth as an Emergency Fund?

It turns out that quite a few people are using their ROTH as an Emergency fund because of this feature. The benefit to gain would be that the money could grow tax-free, but wouldn’t cost you anything to pull it out when the time came.

The downside I see is that if you are invested in stocks and mutual funds, then the value could fluctuate and you would hate to have to pull your funds out when prices are low (remember buy low, sell high?). But one commenter in the Wisebread forums brings up a good point…

“Well, your Roth doesn’t have to fluctuate very much if you invest it in a money market fund so I think it could work out just fine if you designate a small portion to be your emergency fund. For the last year I put my new Roth IRA contributions in a money market fund so in case I need the money I could use it.”

So by having the funds in a money market within a Roth IRA you could be avoiding the taxes on interest each year while avoiding market fluctuations.

Another commenter mentioned another reason to use a Roth…

“Retirement accounts are somewhat protected in cases of lawsuits, bankruptcy, etc. If you suffer a financial catastrophe, it might be really nice to have (some cash) to start over with.”

My thoughts about the Roth Emergency Fund

While I can see the benefit of using it, I think I would prefer to tier my emergency fund a bit. Maybe have $3-$5K in an ING Account, and then have the remainder of the funds in a Roth that you could access the funds in an emergency - but hopefully would never have to. Technically you could be missing out by paying taxes on the interest earned from the $3-$5K - but it would be minimal and it would probably make your life easier.
The other thing to consider is that this just blurs the line between Retirement savings and Emergency savings. As these lines become blurred there may be a tendency to “take tomorrow’s bread today” so to speak.
A couple related articles:

• Roth IRA as an Emergency Fund
• Withdrawing your Roth IRA contributions
  

Do you have a Roth Emergency Fund or would you consider creating one?

• Should you convert your IRA to a Roth in 2010?
• What is an IRA?
• What is a Roth 401(k)? 6 benefits you might care about…

I read this article on Yahoo in which they discuss 8 career paths that are expected to continue growing in demand. The data is from the Bureau of Labor Statistics and they expect the government spending to help stimulate the growth of these industries.

There will always be trends in jobs and I think that should be taken with a grain of salt, but it is a good idea to take a look at the career path you have planned and make sure it will be around in the future. Are you going to school to be a VCR technician?

According to the BoLS, these are some of the best jobs for the future…

1. Computer Security Specialists/Network Administrators

• Growth forecast: 27 percent
• Median salary: $66,310

2. Accountants and Auditors

• Growth forecast: 18 percent
• Median salary: $59,430

3. Registered Nurse

• Growth forecast: 23 percent
• Median salary: $62,450

4. Biomedical Engineer

• Growth forecast: 21 percent
• Median salary: $77,400

5. Electrical Engineers and Technicians

• Growth forecast: 6 and 4 percent
• Median salary: $82,160 & $53,240

6. Diesel Technicians

• Growth forecast: 11 percent
• Median salary: $39,390

7. HVAC Technicians

• Growth forecast: 9 percent
• Median salary: $39,680

8. Entrepreneur

• Salaries vary greatly

Thoughts?

Are you in any of these career fields? Do you see growth and job opportunities for the future like they do?

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