Love Yourself Some Roth 401(k)
As more US workers start new jobs, they should take a closer look at their employers’ options for retirement savings. An underused account called a Roth 401(k) could help minimize taxes in the long run and multiply how much savers eventually have.
Unlike a traditional 401(k), contributions to a Roth 401(k) aren’t tax-deductible, but withdrawals are tax-free in retirement. A helpful way to think about it: With a Roth 401(k), the balance is what you’ll actually get in retirement (since you’ve already paid income taxes on what’s in there) whereas with a regular 401(k), a chunk of that balance will go to paying income taxes when you’re retired and withdraw money from it.
Roth 401(k)s are a no-brainer when you’re young, in a low tax bracket and expect to earn a lot more in the future. Sure, you won’t get the tax deduction upfront, but it probably doesn’t matter if you’re not paying much in taxes in the first place. Plus, you’re likely to more than make up for it given the tax-free growth in your investments over decades.