Posted November 30, 2011 09:49:00 CST

Coming 2012 – New Way to Save for Retirement

by K. Peacock

Roth 401(k) Contributions

Today, 401(k) plan participants can contribute with traditional pre-tax or after-tax contributions. Next year, retirement contributions can also be made with Roth 401(k) after-tax savings. 

How is Roth different and does it make sense for you?

Unlike traditional 401(k) pre-tax contributions, Roth 401(k) contributions are included in your income when contributed to the plan. However, you’ll pay no federal income taxes on Roth 401(k) contribution investment gains when this money is paid to you in retirement, provided certain conditions are met.

Although Roth 401(k) contributions are made on an after-tax basis, they are subject to the IRS annual pre-tax contribution limit (for 2011, this limit is $16,500, plus an additional $5,500 if you are age 50 or older), which applies to the total combined Roth 401(k) and 401(k) pre-tax contributions.

Whether making Roth 401(k) contributions is right for you depends on your personal situation. Generally you may want to consider the option if:

• You are in a lower tax bracket today than you expect to be when you retire.
• You have 20 or more years to invest your employment earnings in a retirement savings plan, and you expect to be in a higher tax bracket in the future.
• You are currently unable to contribute to a Roth Individual Retirement Account (IRA) because your income is higher than the current income limit, but you would like to have a source of tax-free money to draw on in retirement

Reference the 401(k) Contribution Comparison for a detailed, side-by-side look at how these options work. For more information, including FAQs and decision-support tools, visit Roth 401(k).

Union Pacific reserves the right, at its discretion, to amend, change or terminate any of its benefit plans, programs or policies at any time, for any reason.  Should there be any difference between the information provide herein and the terms of the applicable plan document, the terms of the plan document shall govern.