What kind of 401k should i choose

By contrast, if you're in a high tax bracket today, a traditional k 's immediate tax break may be more appealing than the Roth's deferred gratification - especially if you expect to be in a lower tax bracket when you begin to make withdrawals from your account.

It's always a good idea to make sure your retirement money is "tax-diversified," meaning split up among accounts that are tax-deferred until retirement, and accounts that are already settled up with Uncle Sam. One way to do that is to use your k plan as a supplement to your IRA, if you have one. If you have a Roth IRA, you might want to opt for the traditional k at work. How do those definitions play out when it comes to your retirement savings?

With a Roth k , your money goes in after-tax. When you contribute to a traditional k , your contributions are pretax. You may be wondering why anyone would contribute to a Roth k if it means paying taxes now. But hang with us. The huge benefit of a Roth is what happens when you start withdrawing money in retirement.

The biggest benefit of the Roth k is this: Because you already paid taxes on your contributions, the withdrawals you make in retirement are tax-free. Any employer match in your Roth account will still be taxable in retirement, but the money you put in—and its growth! No taxes will be taken out when you use that money in retirement. Another slight difference between a Roth and traditional k is your access to the money.

With a Roth k , you can start withdrawing money without penalty at the same age, but you also must have held the account for five years. The most important part of wealth building is consistent saving every month , no matter what the market is doing. But if choosing between a traditional k and a Roth k , we'd go with the Roth every time! But just to be clear, here are the biggest reasons the Roth comes out on top.

It may be tempting to delay paying taxes so you can get slightly more in your paycheck now. Do you want to take that risk? You'd much rather pay taxes now than see all that money fly out the door later. No matter how much money you earn, you can contribute to a Roth k.

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