Question

Which is true about Roth 401(k)s?

a.) Roth 401(k)s are not subject to required minimum distributions.
b.) Contributions to Roth 401(k)s are subject to MAGI limits.
c.) The employer must maintain Roth 401(k) contributions in a separate account.
d.) Both the employee and the employer contribute after-tax dollars to the Roth 401(k).r-tax dollars to the Roth 401(k).

Answer 1

The true statement about Roth 401(k)s is that employers must maintain Roth 401(k) contributions in a separate account. While contributions from employees are after-tax, employer contributions remain pre-tax. Roth 401(k)s do have required minimum distributions and are not subject to MAGI limits.

Step-by-step explanation:

The correct answer to the question regarding Roth 401(k)s is option c: The employer must maintain Roth 401(k) contributions in a separate account. This is because Roth 401(k) contributions are after-tax funds, and keeping them separate from pre-tax 401(k) contributions simplifies the tax situation. It's also important to note that while employee contributions to a Roth 401(k) are made with after-tax dollars, employer contributions are still made with pre-tax dollars and are kept in a separate account within the 401(k) plan.

Unlike Traditional 401(k)s, Roth 401(k)s do have required minimum distributions (RMDs) starting at age 72, which makes option a incorrect. Also, contributions to Roth 401(k)s do not have Modified Adjusted Gross Income (MAGI) limits like Roth IRAs do, which eliminates option b as a correct response. Finally, as mentioned earlier, only the employee's Roth 401(k) contributions are after-tax, and the employer's are pre-tax, so option d is incorrect.