Roth deferrals are typically only available in the US
A Roth deferral is money a person puts into a Roth investment account to save for later in life, usually in retirement. There are two types of Roth accounts: a standard Roth individual retirement account, or IRA, and a Roth 401(k). Payments to any of the accounts must be made in post-tax dollars. The deferral is in the enjoyment: when participants withdraw, they do so with tax exemption.
All Roth accounts are facets of US tax law and are typically only available in the US or to US citizens working abroad. The distinguishing feature of the Roth is that it is fully financed with cash after taxes. Workers receive their paycheck, pay the necessary income tax, and then choose to allocate some of the remainder to an eligible account. This usually results in a deferral of that money to a later time, the specifications of which are usually defined by the plan.
There are several key differences between Roth IRA and 401(k) plans, but a Roth deferral occurs in either of them. The main idea behind a deferral is to save money in a growth account that can be used later in life without incurring tax penalties. Money is usually invested in stocks, bonds and mutual funds while it is in the account. Over time, the hope is that this money will grow in size and return on top of the initial principal. This growth is usually not taxed, which is why accounts are so beneficial.
Investors are often limited in terms of how much money they can defer and grow through a traditional Roth IRA. There are usually income limits as well, so people earning more than a certain annual salary are not eligible to participate. Money invested in this type of Roth deferral account usually cannot be accessed until the investor has reached retirement age, although in most cases it never needs to be distributed. Deferring money to this type of account is often a means of transferring wealth and assets from one generation to the next. Once the account is eligible to be disbursed, the financial deferral can be passed on to anyone for use at any time.
The same is generally not true when it comes to Roth 401(k) accounts. This type of Roth deferral is typically offered and administered by companies for the benefit of qualified employees. Deferred payments are usually made via direct payroll deduction, and almost anyone is eligible to participate, regardless of how much money they earn. Generally, there are still limits that limit the annual deferral to a certain amount, but in most cases one can contribute more to a 401(k) deferral account than to an IRA in a given year.
Choosing the best Roth deferral is usually a matter of circumstance and careful financial analysis. Roth 401(k) plans can often hold more money, which makes higher returns more likely. Investment vehicle choices are generally limited by the sponsoring corporation, however. Distribution is usually mandatory when the investor reaches a certain age as well. It is sometimes possible to transfer a 401(k)-style plan to one that does not have a mandatory purchase date, but not always.