Individual Roth 401k

The Individual 401k contribution limit in 2009 and 2010 is $49,000 or $54,500 if age 50 or older. The annual contributions into a Individual 401k consists of 2 parts a salary deferral contribution and a profit sharing contribution.

Roth 401k Salary Deferral

Participants in a Individual 401k have the option to make Roth 401k contributions only with the salary deferral portion of the Individual 401k. In 2009 and 2010 the Roth 401k salary deferral contribution limit is $16,500 and $22,000 if age 50 or older. Individual Roth 401k salary deferral contributions are not tax deductible, but withdrawals are tax free after age 59 provided the 5 year rule is satisfied.

Profit Sharing

A profit sharing contribution of up to 25% of compensation can also be made into a Individual 401k. The profit sharing portion of the Individual 401k contribution is not eligible to be made as a Roth contribution. Profit sharing contributions are made pre-tax and are tax deductible.

Note: The combined 2009 and 2010 salary deferral and profit sharing contributions in a Individual 401k cannot exceed $49,000 or $54,500 if age 50 or older.

Roth 401k versus Traditional 401k comparison

	Roth 401k (after tax contributions)	Traditional 401k (pre-tax contributions)
Maximum annual contribution (under age 50)	$16,500 - 2009 / 2010	$16,500 - 2009 / 2010
Maximum annual contribution (age 50 or older)	$22,000 - 2009 / 2010	$22,000 - 2009 / 2010
Tax treatment of contributions	After tax (not tax deductible)	Pre-tax (tax deductible)
Tax treatment of distributions	Distributions are tax free if five years have passed since the first contribution AND there is a qualifying event (attainment of age 59½, death or disability)	Distributions are taxed as ordinary income and can be withdrawn after age 59 ½ without IRS penalty.
Required minimum distributions (RMDs)	Must begin at age 70½ unless rolled to a Roth IRA. If rolled over to an Roth IRA then the money is not subject to RMD rules until the death of IRA owner	Must begin at age 70½
Rollovers	Can rollover to another Roth 401k or a Roth IRA	Can rollover to another traditional 401k or a Traditional IRA or Rollover IRA

Learn more about the Individual Roth 401k.

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Disclosures:

* The information on this page is for informational purposes only and does not constitute, and should not be construed as, professional, legal or tax advice. To determine your individual tax situation and specific needs, please consult a professional tax advisor.

* Information contained in these sections merely highlight some benefits. There are risks involved with all investments that could include tax penalties and risk/loss of principal.

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