How Is a Roth 401(k) Different from a Traditional 401(k) or Roth IRA?.
A Roth (k) brings the benefits of the Roth IRA to the (k) scene. With a regular (k), you save for retirement with pre-tax dollars. Roth (k)s let you use after-tax dollars. For example, in tax year , normal Roth IRA contributions are limited to $5, ($6, if age 50 or older); up to $17, could be contributed to a Roth (k) account if no other elective deferrals were taken for the tax year, such as traditional (k) deferrals.
Using both accounts will diversify your tax situation in retirement, which is always a good thing. NerdWallet adheres to strict standards of editorial integrity to help you make decisions with confidence. Some of the products we feature are from partners. We adhere to strict standards of editorial integrity. Some of the products we feature are from our partners. Roth k vs. Contributions are made after taxes, with no effect on current adjusted gross income.
Employer matching dollars must go into a pre-tax account and are taxed when distributed. Tax treatment of withdrawals Distributions in retirement are taxed as ordinary income.
No taxes on qualified distributions in retirement. Withdrawal rules Withdrawals of contributions and earnings are taxed. Withdrawals of contributions and earnings are not taxed as long as the distribution is considered qualified by the IRS: The account has been held for five years or more and the distribution is: We want to hear from you and encourage a lively discussion among our users.
You can also sock away thousands of dollars more each year with a Roth k and traditional k s than you can with Roth IRAs. Note that any employer contributions to a Roth k will be made pretax and will grow tax-deferred alongside your own Roth contributions. When you withdraw money, you will owe income tax on the employer match. The Roth k can help you build a sizable nest egg. Stuart Ritter, a certified financial planner with T.
Brennan also recommends a Roth k for younger workers. If and when income increases substantially and their tax bracket is higher than it will likely be in retirement, it might make sense at that point to switch to pretax deferrals in a regular k , she says. Toggle navigation Menu Subscribers Log In. Store Deals Log in Search Close. Toggle navigation Menu Subscribers.
Tax treatment of withdrawals Distributions in retirement are taxed as ordinary income. Employer matching dollars must go into a pre-tax account and are taxed when distributed.
With a Roth k , you pay taxes up front.