To Roth Or Not To Roth Part 2

Posted on April 11, 2012. Filed under: For Individuals | Tags: , , , , , , , , , , , , , |

As mentioned in the previous blog we want to help people understand the difference between a Traditional 401k and the Roth 401k feature that is available in many plans today. Many of you might be saying sure go ahead and explain it but my 401k is not worth half of what it was, so it doesn’t really matter to me. I will argue that even though you may have half of your old account value, what is left and more importantly what will continue to be contributed is still very important. The choice between the two could mean a huge difference in your future income while in retirement. So instead of boring you with a ton of useless jargon we will get right to the point by listing out the main differences.

 

Traditional 401k

Money is contributed before you pay taxes

Earnings in your account are tax-deferred

Employer match is pre-tax

Mandatory withdrawals

 

Roth 401k

Money is contributed after you pay taxes

Earnings in your account are tax-free  (subject to age 59 ½ and 5yrs of account ownership)

Employer match is still made pre-tax but placed in a separate account for tax purposes

NO mandatory withdrawals

 

You may be asking yourself ok great, so now I know that I can put money in my account either before tax or after tax, so which one is right for me? This is a great question and one that we will address in the next blog. As for now we hope this helped a little and stay tuned for the next post in this series.

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