Schwab Retirement Plan Clients Adopting New Roth 401k
New plan option can offer significant tax planning benefits for 401k savers.
SAN FRANCISCO, CA, December 20, 2005 -- Charles Schwab already has retirement plan clients lined up to take advantage of the new Roth 401k provision that goes into effect next year. To date, 76 retirement plans at Schwab have decided to add the feature, including 51 plans that will implement the change effective January 1.
"The Roth 401k option is worth considering for anyone who has access to it through their workplace retirement plan," said Jim McCool, senior vice president, corporate and retirement services at Schwab. "Depending on your retirement goals and expectations, saving after-tax dollars in a Roth 401k can result in significant tax benefits when you retire because qualified withdrawals will be tax free."
Employers adding the feature to their 401k plans at Schwab represent a wide variety of fields, including construction, financial services, healthcare, legal, manufacturing, retail, technology and transportation.
Schwab developed communications and training materials for employers and their employees in anticipation of the Roth 401k implementation date. Next month, the firm will debut an online calculator to help individuals compare scenarios if they choose Roth 401k contributions, traditional pre-tax contributions, or a combination of both.
Schwab has also developed capabilities to enable third party administrators to offer the Roth 401k option to their plan sponsor clients on January 1, including enhancements to its employee contributions web site, certified trust statements and distribution processing capabilities.
Roth 401k Basics
Saving under the Roth 401k is similar to saving under a "regular" 401k: employees elect to have a certain amount withheld from their paycheck and contributed to their retirement plan. The difference is when taxes are paid. Typically, 401k payroll deductions are made on a pre-tax basis. Therefore, the employee receives an immediate tax break when the money goes into the plan, and pays taxes later when he or she withdraws money from the plan.
In a Roth 401k, the payroll deductions are made on an after-tax basis, which means the employee pays taxes on the Roth 401k contribution before the money goes into the plan. When the employee withdraws money in the future, both the Roth 401k contributions and all of the investment earnings are tax-free, assuming withdrawal qualifications are met. By adding the Roth 401k provision to an existing 401k plan, employers enable their employees to make both pre-tax and Roth contributions if they choose.
The Roth 401k provision was included in the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) that Congress passed in 2001, but the Roth 401k provision had a delayed implementation date of January 1, 2006. Currently, the provision is scheduled to expire in 2010, along with other provisions included in EGTRRA. Some employers have postponed making a decision on adding the Roth 401k component to their plans because of uncertainty over this 2010 "sunset" date.
"We believe more clients will adopt the Roth 401k if EGTRRA provisions are made permanent, which may happen as part of pension reform legislation currently before Congress," said Steve Patterson, chief operating officer, Schwab Retirement Plan Services.
About Charles Schwab
The Charles Schwab Corporation (NASDAQ: SCHW), through its operating subsidiaries, provides securities brokerage and financial services to individual investors and the independent investment advisors who work with them. With over 7 million individual investor accounts and more than $1 trillion in client assets, The Charles Schwab Corporation is one of the nation's largest financial services firms. These companies' Web sites can be reached at www.schwab.com, www.schwabbank.com, www.ustrust.com, and www.cybertrader.com.
###
Click here for more material dealing with current trends, opinion, news, legislative action, investments, marketing, sales, consulting, and legal issues on 401k plans.
This is a press release provided by the company or its representatives. 401khelpcenter.com, LLC is not the author of this release and is not associated or affiliated with any firm or organization mentioned unless otherwise noted. Use of any information obtained from this release is voluntary, and reliance on it should only be undertaken after an independent review of its accuracy, completeness, efficacy, and timeliness. Reference to any specific commercial product, process, or service by trade name, trademark, service mark, manufacturer, or otherwise does not constitute or imply endorsement, recommendation, or favoring by 401khelpcenter.com, LLC.
