Traditional 401(k)s Vs Roth 401(k)s: Which One Is Right for Me?

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Traditional 401(k)s Vs Roth 401(k)s: Which One Is Right for Me?
Planning for retirement may include choosing between traditional and Roth 401(k) plans.
Unless you are a financial advisor or have spent a significant amount of time reading up on both, it may be difficult to understand the difference between a traditional 401(k) and a Roth 401(k).
Watch to learn the difference between traditional and Roth 401(k) plans and discover why a Roth 401(k) may be a good fit for your retirement needs.
What’s the Difference between a Traditional 401(k) and the Roth 401(k) Provision?
The Traditional 401(k)
The benefit of a traditional 401(k) is the tax deferral. In short, this means that when you defer money from your paycheck, it goes into your 401(k) on a pre-tax basis.
This means that you're not actually paying taxes now on the money that goes into the 401(k) and it grows tax deferred. Then, when you pull the money out, that is when you pay the taxes.
The basic idea is that you'll pay taxes in retirement when you're utilizing the money, and possibly at a lower tax rate.

The Roth 401(k)
Essentially, the Roth 401(k) is a provision inside the traditional 401(k).
The key difference is that the Roth provision allows you to contribute after-tax money to your 401(k).
In other words, you go ahead and pay some taxes now to put the money in your 401(k). It grows tax-free, and, when it comes time to take money out, you don’t pay taxes on it.

Hear What Founder and CEO of 401(k) Maneuver, Mark Sorensen, has to say about Traditional Vs Roth 401(k)s. Watch the video: [ Ссылка ]


What Is a Roth 401(k)?
A Roth 401(k) is an employer-sponsored investment savings account that is funded with after-tax dollars.
The Roth (401)k hasn’t been around too long – it came into effect on January 1, 2006.
Similar to traditional 401(k) plans, a Roth 401(k) is also subject to contribution limits, but the limits are higher than the $6,000 annual limit for a Roth IRA.

What Are the Rules of a Roth 401(k)?
Both traditional and Roth 401(k) plans have contribution limits based on age.
For 2021, the Roth 401(k) contribution limit is $19,500 per year.
However, individuals 50 and older can give a catch-up contribution of up to $6,500 per year.
As far as withdrawals from the Roth 401(k), these are not taxed as long as they meet qualified distribution criteria, which include having the plan for at least 5 years or because of disability or death, or reaching the age of 59 ½.

What Are the Benefits of a Roth 401(K)?
From an investor’s point of view, a Roth 401(k) is beneficial because individuals don’t have to worry about paying taxes in the future as long as they have the account for 5 years.

According to Mark Sorensen, Founder and CEO of Royal Fund Management and 401(k) Maneuver, “I believe everyone who has the opportunity should take advantage of the Roth 401(k) provision to enjoy tax-free money in the future. With that being said, the Roth 401(k) is particularly appealing to younger employees–especially those who expect to be in a higher tax bracket later in life.”

Want to maximize your 401(k) and keep more of your hard-earned money? Check out our no-cost guide 5 Mistakes You Want to Avoid with Your 401(k). [ Ссылка ]
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