Renwanz Insurance & Financial Solutions, Carlsbad, CA
A Roth 401k would be funded with "after tax" dollars. Your earnings would have already had taxes deducted prior to funding your Roth 401k. The advantage of a Roth (vs. traditional 401k) is your account grows and distributes tax free as long as your contributions have been invested for at least 5 years and you are at least 59 1/2 when distributions begin.
A traditional 401k is funded from "pre-tax" dollars. Your take home pay will be higher, but you will pay taxes on the money you take out during retirement at what ever your tax rate is at that time. Most people do not have the same level of deductions during their retirement years so you will need to look at your own situation to determine whether a pre-tax or post-tax 401k is best for you. One thing is for sure, if you can afford to pay the taxes now while you are putting money into your Roth 401k, you'll be thrilled when you pull money out during retirement tax free.
That is a great question! One of the best things about a Roth IRA is that you fund it with after-tax dollars. That means unlike your health insurance or 401k deductions that come out of your paycheck before taxes are figured, what you put into your Roth is already taxed. The benefit there is that when you start taking money out of it in retirement, you don't have to pay taxes on it then. This can be a terriffic blessing! I hope that helps, thanks for asking!
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A traditional 401k is funded from "pre-tax" dollars. Your take home pay will be higher, but you will pay taxes on the money you take out during retirement at what ever your tax rate is at that time. Most people do not have the same level of deductions during their retirement years so you will need to look at your own situation to determine whether a pre-tax or post-tax 401k is best for you. One thing is for sure, if you can afford to pay the taxes now while you are putting money into your Roth 401k, you'll be thrilled when you pull money out during retirement tax free.