What is current/correct way to setup Roth 401k account?

I think the 3 main differences between Roth 401(k)s and Roth IRAs are:

1. Roth 401(k)s are employer sponsored plans while Roth IRAs are personal retirement plans. Contributions to both are after-tax and both are tax exempt forever. (Quicken will show the accounts as Tax Deferred but they play into reports and Tax Planner as Tax Exempt.)
2. Roth 401(k)s and Roth IRAs have different maximum contribution limits. (I'm not sure what the current limits are.)
3. RMDs apply to Roth 401(k)s, just like with 401(k)s and IRAs. When the RMDs need to start being taken varies based upon the birth date. Failure to comply with the RMD requirements will incur a penalty. RMDs do not apply to Roth IRAs.

I agree that this new Roth 401(k) paycheck deduction option is currently half-baked because:

1. There is still no Roth 401(k) account option.
2. There is no employer contribution for the Roth 401(k).
3. It does not yet address how 401(k) accounts in Quicken can properly manage both regular and Roth contributions to, holdings in and distributions from the same account.

Until these issues are addressed or someone has found a way to deal with these things perhaps the best thing to do at this time is as follows. I have done limited testing and it appears that the following will capture the data properly in Tax Reports and Tax Planner.:

• If your Roth 401(k) holdings are in a separate account: Set up the account in Quicken as a Roth IRA account…name it as a Roth 401(k). Direct the After-Tax paycheck deduction to this Roth 401(k)-named Roth IRA account. Doing it this way will be properly reflected in the Tax Reports and Tax Planner.
• If your Roth 401(k) and regular 401(k) holdings are held in a single account: There is, IMO, no good solution for how to deal with this at this time. One could, as suggested by @Jim_Harman in his post earlier today, have both the 401(k) and Roth 401(k) deductions transferred into the same 401(k) account but have differently named securities for the Roth 401(k) investments. A big issue with this is that the Roth 401(k) deductions will show up in Tax Reports and Tax Planner as Pre-Tax deductions instead of After-Tax deductions. The other option would be to have the Roth 401(k) contributions transferred into a Roth IRA account but then you would have 2 accounts in Quicken…one for the 401(k) and one for the Roth 401(k) when there should be only one combined account. Until this issue gets resolved by Quicken it will be a personal choice as to which method to use.

Neither of these options will address employer contributions, though. For this, I think I would:

• Set up the Paycheck Reminder with a standard Pre-Tax 401(k) paycheck deduction of $0 plus an amount for the employer contribution. Again, direct this to the Roth 401(k)-named Roth IRA account.

I'm all ears if someone has any other suggestions.

You will not find "Tax Exempt" in Tax Planner because Tax Planner is designed to capture tax related events. Tax exempt transactions are not tax related events. The fact that you are not seeing your Roth 401(k) and Roth IRA transactions in Tax Planner is a good thing. You should not be seeing Roth 401(k) and Roth IRA transactions in any of the Tax Reports, either.

When setting up Lifetime Planner there is no separate listing for "Tax Exempt" vs "Tax Deferred" vs "Taxable". You simply select the investment accounts you want included in the plan. Lifetime Planner will then pull data from the Account Details for each of those accounts to determine what type of accounts they are and whether or not they are taxable or "tax deferred" (which includes "tax exempt").

How well Lifetime Planner differentiates between true tax deferred accounts and tax exempt accounts in the outputted plan is something we'll probably never have insight into. The best we'll see is the chart which shows taxable assets and tax deferred assets. My guess is that tax exempt accounts are accounted for properly in the calculations but the output is lumped together with other tax deferred accounts because that is how they are shown in Account Details.

The fact that Tax Planner and the Tax Reports do differentiate between tax exempt and true tax deferred deferred accounts like IRAs and 401(k)s gives me some confidence that Lifetime Planner is probably doing the same thing.

If it does not differentiate between tax exempt and tax deferred then we should have some confidence that Lifetime Planner is returning a more conservative projection because it would then be including tax expenses that will not actually be incurred. So in real life the positive financial picture will be actually better than is what is projected in the chart.

How accurate is Lifetime Planner? I think it should be viewed only as a good reasonably detailed ballpark projection and nothing more than that. I have done sanity checks on Lifetime Planner many times over the years using other free tools that are available online, such as the tools available from Fidelity (where all my investment accounts are), Vanguard, AARP and others. Most of those tools do not provide opportunity to enter anywhere near the level of detail that Lifetime Planner does but I've always been amazed at how well they all returned results within the same general ballpark.

Should Quicken change the wording on Account Details for Roth 401(k) and Roth IRA accounts from "Tax Deferred" to "Tax Exempt"? I think that would be a good idea, if for no other reason than to eliminate some potential confusion/concerns such as what you are expressing (and, no, you are not the first person to raise these questions). If you want to, you can suggest this change be made to Quicken at Product Ideas - Quicken for Windows and then clicking in the New Idea button. Be sure to vote for your idea after you post it. Quicken employees do review ideas that are posted here and the more votes an idea gets the more likely it is that the idea will at some time be added to their Product Development Plan.