How Does Roth 401K Affect Taxes?

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   Jim Winkler

   CEO/Owner, Winkler Financial Group, Houston, Texas

   That is a great question! When you make contributions to your Roth IRA, those contributions are made after you are taxed on them. When you make contributions to your companies 401k, for example, those contributions are subtracted from your income before the remainder of the income is taxed. Since Uncle Sam didn't get his slice of tax on your 401k money, he takes it when you make your withdrawals. In your Roth's case, you've already paid him, so your Roth withdrawals are not taxed. So your contributions, (up to $5500, $6500 if you are 50+) are made after tax ( and cannot be deducted on your income tax forms), and your withdrawals tax free, as long as they meet the 5 year, or 59 1/2 year old rule. If you withdraw more than what you've paid in before that time, the gains are taxable, so be careful. I hope that clears it up for you, if not, please feel free to contact me, and I'll walk you through it. Thanks for asking!

   Answered on June 26, 2014

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