How to Open a Roth 401(k)

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Is a Roth 401(k) for you?
Is a Roth 401(k) for you? (Image: dollar image by andrey polichenko from <a href='http://www.fotolia.com'>Fotolia.com</a>)

When opening a 401(k) with your company, you have a choice between a traditional 401(k) or a Roth 401(k). For a traditional 401(k), you are not taxed on the income until you withdraw it. For a Roth 401(k), the money is taxed before you deposit it in the account, but then it grows tax-free. Once you've decided which option is best for your situation, setting the account up through your company is easy.

Things You'll Need

  • URL for your company's 401(k) administration website
  • Your log-in information

Understand your options. A Roth 401(k) might be a good choice if you are making a small income now and expect to have a higher income during retirement. Otherwise, a traditional IRA might be best for your needs. If you are uncertain, your company might be able to direct you to a financial expert, or you can find one yourself.

Log in to your account. If you're not sure how or where to log in, talk to your human resources department and get the relevant information. If it's your first time logging in, you might need to set up your account, which means inputting personal data.

Set a contribution amount. You need to decide how much of your income will be going into the Roth 401(k). It can be a good idea to figure out your personal budget before submitting an amount, to ensure that you can afford it. Remember, you can always change the amount at a later date.

Choose the fund. Often, companies will provide you with a mix tailored to your retirement age. These can be a good bet if you're not sure where to invest. If you're going out on your own, remember that diversification is key. You want a mix of bonds and mutual funds, as well as a mix of domestic and foreign investments.

Be sure to specify that you want a Roth 401(k)--not a traditional 401(k). At some point in the process, this question will come up. Take special care to select a Roth 401(k) if this is the option you've decided on.

Monitor your fund. If you have selected a mix based on your retirement year, the fund managers will automatically keep the mix appropriate for your age range. If not, you should keep an eye on it yourself to make sure that the risk level is appropriate for you.

Tips & Warnings

  • Be aware that some companies do not offer a Roth 401(k) option yet. However, you can open a Roth IRA on your own. Stay in for the long haul. Remember, a 401(k) is a long-term investment, so don't be worried by the bumps along the way.
  • Roth 401(k) are not a good investment for everyone. Consult a financial adviser if you are uncertain.

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