Schwab Retirement Plan Clients Adopting New Roth 401(k)
December 20 2005 - 11:00AM
PR Newswire (US)
New Plan Option Can Offer Significant Tax Planning Benefits for
401(k) Savers SAN FRANCISCO, Dec. 20 /PRNewswire-FirstCall/ --
Charles Schwab already has retirement plan clients lined up to take
advantage of the new Roth 401(k) 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 401(k) 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 401(k) can
result in significant tax benefits when you retire because
qualified withdrawals will be tax free." Employers adding the
feature to their 401(k) 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 401(k) implementation
date. Next month, the firm will debut an online calculator to help
individuals compare scenarios if they choose Roth 401(k)
contributions, traditional pre-tax contributions, or a combination
of both. Schwab has also developed capabilities to enable third
party administrators to offer the Roth 401(k) 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 401(k) Basics Saving
under the Roth 401(k) is similar to saving under a "regular"
401(k): 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, 401(k) 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 401(k), the payroll deductions are made on an after-tax
basis, which means the employee pays taxes on the Roth 401(k)
contribution before the money goes into the plan. When the employee
withdraws money in the future, both the Roth 401(k) contributions
and all of the investment earnings are tax-free, assuming
withdrawal qualifications are met. By adding the Roth 401(k)
provision to an existing 401(k) plan, employers enable their
employees to make both pre-tax and Roth contributions if they
choose. The Roth 401(k) provision was included in the Economic
Growth and Tax Relief Reconciliation Act (EGTRRA) that Congress
passed in 2001, but the Roth 401(k) 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 401(k) component to their plans because of
uncertainty over this 2010 "sunset" date. "We believe more clients
will adopt the Roth 401(k) 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. Its subsidiary Charles Schwab & Co., Inc. (member SIPC)
provides a complete range of investment services and products,
including an extensive selection of mutual funds; financial
planning and investment advice; retirement plan and equity
compensation plan services; referrals to independent fee-based
investment advisors; and custodial, operational and trading support
for independent fee-based investment advisors through its Schwab
Institutional division. Its subsidiary Charles Schwab Bank (member
FDIC) provides banking and mortgage services and products. The
corporation's other operating subsidiaries include U.S. Trust
Corporation (member FDIC) and CyberTrader(R), Inc. (member SIPC).
These companies' Web sites can be reached at
http://www.schwab.com/, http://www.schwabbank.com/,
http://www.ustrust.com/, and http://www.cybertrader.com/.
(1205-9144) DATASOURCE: Charles Schwab CONTACT: Mike Peterson,
+1-330-908-4334, or ; or Lindsay Tiles, +1-415-667-3997, or , both
of Charles Schwab Web site: http://www.schwab.com/
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