Not a bad deal, lets go through it again.

Earn $40,000.

Pay taxes on all $40,000.

Put $5000 into Roth IRA, after tax.

$5000 grows to $75,000 over your lifetime.

Take original $5000 out – taxes were paid when that money was earned. Take $70,000 tax-free. Nothing due on earnings.

In a regular IRA you put $5000, before taxes, from earnings into same investments in IRA, grows to same $75,000 over time. Then pay taxes on all $75,000 when taking it out of IRA.

Pay taxes now on $5,000 and nothing later,

$70,000 distribution – tax-free.

Or,

Pay no taxes now on $5000 and pay taxes on full $75,000 taxable distribution.

Seems fairly straight forward, especially if you think taxes will be the same or possibly higher when you retire.

Here is where it gets interesting.

A Roth IRA has earnings limitations. If you earn over $120,000 as a

single person, or over $177,000 as a married person, you can not make a Roth contribution. Tough luck.

But wait……..

Making an employee contribution into a Roth ‘bucket’ in your 401(k) has no earnings limitation. You can put full employee contribution into the Roth ‘bucket’ not just $5,000.

If you earn $200,000, are over age 50, you can put $22,000 into the Roth 401(k) at work.

In 25 years that $22,000, earning 6% grows to $94421.16. The $22,000 had taxes paid when earned, but the growth $72,421.16 is never subject to taxes.

I’d call that the best kept secret out there. Whether you run a sustainable green business, green health spa, yoga business or are just interested in corporate sustainability, a Roth option in your 401(k) will probably make sense.

This is an example and anyone interested in further information should contact a registered financial advisor, or ask about a Social(k) 401(k) /  403(b) at work.