The Roth only accepts after-tax contributions. When investing in a Roth 401(k) plan, you must be mindful of the contribution limits associated with the plan. The IRS imposes these limits to prevent you from contributing too much money to the tax shelter.
Identification
The after tax contribution limits for Roth 401(k) plans is $16,500 for individuals under 50, and $22,000 for those age 50 and over. The contribution limits apply to all Roth 401(k) plans, but do not prevent you from investing in traditional retirement accounts using pretax or tax deductible contributions.
Significance
After-tax contribution limits specify the total amount of money that may be contributed to your Roth account. The Roth account receives after-tax contributions, but the withdrawals are income tax-free. By limiting the contribution amount, the IRS is limiting the tax benefits available from the retirement account.
Benefit
The benefit to the Roth 401(k) after-tax contribution limit is that it's higher than the Roth IRA limit, which is set at $5,000 for individuals under age 50 and $6,000 for those 50 and over. There are also no income limits as there are with Roth IRAs. Anyone can contribute to a Roth 401(k) plan regardless of income level.
Disadvantage
The disadvantage to the Roth 401(k) contribution limits is that the contribution limits prevent some high-income earners from contributing a significant amount of money to the plan.
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