Tax Structure Difference between Roth 401k & Harbor 401k
Even though a roth 401k and a safe harbor 401k are both set up as 401k retirement investment vehicles, each plan has a different tax structure.
ROTH 401K
With a roth 401k, contributions are made with after tax money, so your withdrawals are tax free. The withdrawals are tax free if the account has been held for 5 years and you are over age 59. Funds from a roth 401k can be rolled over to a roth ira. The 2009 roth 401k contribtuion limit is $16,500 with a catch up contribution of $5,500 if you are over the age of 50.
SAFE HARBOR 401K
Similar to a traditional 401k, safe harbor 401k contributions are made with pre tax money. Your contributions can reduce your taxable income. But your withdrawals from a safe harbor 401k are not tax free. The 2009 safe harbor 401k contribution limit is also $16,500 with a catch up contribution of $5,500 if you are over age 50.
The advantage of a safe harbor 401k over a traditional 401k is that a safe harbor is easier to administer.
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