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re: 401k and Roth 401k
Posted on 8/16/16 at 11:35 am to ragacamps
Posted on 8/16/16 at 11:35 am to ragacamps
quote:
Can someone please tell me what's the difference, I'm assuming taxes?
Correct. You can check the stickied thread at the top of the board for several informative threads on the topic. In short...
401k contributions are taken pre-tax and you pay taxes when you withdraw. Which is great if you know you'll have a lower tax rate when you retire.
Roth 401k contributions are taken post-tax and you don't pay taxes when you withdraw. Which is great if you know you'll have a higher tax rate when you retire.
Since your tax rate when you retire is probably an uncertainty, you should have some form of balance between the two of them in order to protect yourself from any future tax situation. One thing is for sure though, If she receives an employer match on contributions to the 401k, make sure she at least hits that match before contributing to the Roth 401k.
Posted on 8/16/16 at 11:37 am to TheChosenOne
Will the Roth 401k contributions just go into whatever funds We have picked for her 401k?
This post was edited on 8/16/16 at 11:37 am
Posted on 8/16/16 at 10:07 pm to TheChosenOne
I'd like to point out that with a traditional 401k/IRA you are taxed on the principle as well as the growth upon distribution. A key advantage of a Roth account is that you are only taxed on the principle as it is invested and can withdraw with no taxes on the gains. If you are young, the gains should be the bulk of the account in retirement.
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