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401k and Roth 401k

Posted on 8/16/16 at 11:19 am
Posted by ragacamps
Member since Jan 2011
2997 posts
Posted on 8/16/16 at 11:19 am
I've read online and I'm still confused. My wife has both options available through her employer. Can someone please tell me what's the difference, I'm assuming taxes? Are there more investments available with the Roth 401k or will it be the same ones with the difference being after tax?? Both with fidelity

Thanks in advance. This board is super helpful.
This post was edited on 8/16/16 at 11:20 am
Posted by TheChosenOne
Member since Dec 2005
18549 posts
Posted on 8/16/16 at 11:35 am to
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.
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