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Traditional 401(k) contributuions contributions save you money on your taxes now. The The amount you contribute from your paychecks as Tradiditional 401(k) contributions reduce your federal tax bracket and liability right now. Traditional Traditional 401(k) contributions may be a good fit for people who 1) want to take Parsomage withjdrawals withdrawals at retirement - see Withdrawal as Parsonage (Age 59 1/2 or Older ) or 2) people who are making a higher wage now (in their working years) and are therefore in a higher tax bracket now than they foresee themselves being when they retire. |
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Roth 401(k) Contribution Example Year wages = $20,000 However, if that grows with interest to $100,000 over 35 years you will not owe taxes when you withdraw it. |
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Roth 401(k) contributions save you money on your taxes when you retire and start withdrawing the retirement funds. The amount you contribute from your paychecks as Roth 401(k) contributions do NOT reduce your federal tax bracket and liabilitynow. However, when you withdraw the funds in retirement you do not have to pay Federal taxes on the Roth amounts you contributed to the 401(k) plus you don't have to pay Federal taxes on any interest you withdraw/earned from those Roth contributions. Roth 401(k) contributions may be a good fit for people who 1) are under age 40 - simply because you have 20+ years till retirement, which means the interest you earn on your 401(k) contributions could be sizeable or 2) people who are making a lower wage now (in their working years) than they expect to be when they are Retired, and are therefore in a lower tax bracket now than they foresee themselves being when they retire and 3) people who foresee the Federal tax rates going up in the future and would rather pay taxes on the 401(k) contributions based on today's tax rates. |
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Roth tax savings do not apply to the employer match and interest earned on the match. |
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