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The Roth 401(k) Surprise

Last update on: Mar 14 2020

Unlike Roth IRAs, not all distributions from Roth 401(k)s are tax free. When an employer makes contributions to a Roth 401(k), those aren’t included in the employee’s gross income. Instead, they are taxed when they eventually are withdrawn from the account. This article has the details.

The next logical question is, how do you know how much you owe in taxes? What if you withdraw retirement income from both a Roth and a traditional 401(k) over the course of a year?

Figuring out the tax bite “is not your problem,” said Jaleigh White, CPA for a Louisville, Kentucky, investment firm and member of the National CPA Financial Literacy Commission for the American Institute of CPAs.

Retirees with two accounts decide which one to withdraw money from. But the investment firm administering and investing your 401(k) is responsible for tracking the returns and contributions to each account and can immediately estimate how much you would owe in income taxes, depending on which account the money comes out of.




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