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Roth 401(k)

Employers are now allowed to add a Roth option to 401(k) plans to allow employees to invest after-tax money with the promise of tax-free withdrawals in retirement. With the regular 401(k), you invest pre-tax money but have to pay tax on all withdrawals in retirement. If your firm offers a matching contribution, it must go into the traditional 401(k), and you will be taxed on distributions from that part of the plan. The same dollar limits apply to Roth 401(k)s as to regular plans. The maximum employee contribution for 2013 is $17,000. Plus, you can make an extra $5,500 “catch-up” contribution if you are age 50 or older. You can choose to divert part of your pay to each kind of 401(k) account, but your combined contributions can’t exceed the preceding limits.