When Guild members join The Animation Guild 401(k) Plan, can choose to make traditional "pre-tax" contributions, Roth 401(k) after-tax contributions, or a combination of the two. Each offers a valuable tax advantage:
• Pre-tax contributions lower a participant's taxable income, so she or he avoids taxes today. But participants don’t avoid taxes forever. When anyone makes a withdrawal, they'll owe ordinary income taxes on contributions and any earnings. (The assumption is: taxes will be lower in retirement than during a participant's peak earning yours.)
• Roth 401(k) contributions don’t lower a participant's taxable income, so she or he pay taxes today. But they can make tax-free withdrawals of both contributions and any earnings provided they're at least age 59 1⁄2 and made the first Roth contributions at least five years earlier.
Understand that Roth 401(k) contributions are different from Roth IRA contributions. Roth 401(k) contributions are made within a company-sponsored plan. In contrast, Roth IRA contributions are made to an individual account outside of a 401(k) plan. The good news is that individuals may be able to do both.
The maximum amount that can be contributed in 2016 -- Roth, Traditional 401(k), or a combination of both -- is $18,000 ... or $24,000 for individuals fifty or more years of age.
401(k) Plan Trustees met last Monday. Right now there are 2600 participants, with an average account of $90,000. There are currently $232 million in assets in TAG's 401(k) Plan.