Contributions to a Traditional 401(k) plan are made on a pre-tax basis, resulting in a lower tax bill and higher take-home pay. Contributions made to a Roth 401(k) account are made on an after-tax basis, which means that taxes are paid on the amount contributed in the current year. The reverse is true once you are eligible to make 401(k) withdrawals. Withdrawals from Traditional 401(k) plans are taxable, while qualified distributions from a Roth 401(k) account are not. Don't forget to factor in your other assets, income and investment such as equity in a home, Social Security benefits, individual retirement plan investments, savings accounts, and interests in other qualified and non-qualified plan.
Use this calculator to compare a Traditional 401(k) vs. a Roth 401(k).
