One of the easiest questions for me to answer as a financial professional is, “Should I be contributing to my employer’s 401(k) program?” In 99% of the cases the answer is, “Absolutely!” Some plans even offer a Roth 401(k) in addition to a Traditional 401(k), so if yours is one of them you’ll certainly want to take some time to figure out the best fit for you.
The biggest difference in these two types of accounts is when your money is taxed:
A traditional 401(k) offers a greater tax benefit now since the money will be taxed later when you withdraw it.
A Roth 401(k) offers you a greater tax benefit later since the money is taxed now at contribution time.
Knowing which tax bracket you’re in now vs which you’ll be in at retirement is the biggest factor to consider when you’re making this choice. If you’re expecting to be in a higher tax bracket in your retirement years, then a Roth 401(k) that’s taxed now rather than later might get you the largest bang for your buck.
If this is a decision you’re currently facing, let’s brainstorm it together so we can be certain you make the right choice.
Traditional 401(k) vs Roth 401(k) – Do You Have Access to Both?
September 17, 2020|