Coming in 2006: Roth 401(k) Accounts

One of the last legacies of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”) are “Roth 401(k) accounts” under 401(k) plans. Beginning in 2006, employers will have the option to permit employees to make “Roth 401(k) contributions” under their 401(k) plans. Similar to the popular Roth IRAs, Roth 401(k) contributions are made on an after-tax basis, and “qualified” distributions are completely tax-free, including the earnings. However, Roth 401(k) accounts have two significant advantages over Roth IRAs.