Some employers offer their employees a choice between a traditional 401(k) and a Roth 401(k). Sometimes it’s even possible to split money between both.
If both are available to employees, it can help to know the main differences between the two so they can make the best decision for them.
Understanding how contributions and distributions work for both can help them choose.
Does your employer offer more than one type of 401(k)? If so, you’ll likely be comparing a Roth vs. traditional 401(k). You may not have to choose one over the other, as some employers let you split your money between the two.
The goal of both is to help your money grow now and let you access those funds in retirement. Other similarities include traditional and Roth 401(k) contribution limits and catch-up contributions, but the two are taxed differently on contributions and qualified distributions. Those differences are one good reason to have both, as a traditional 401(k)’s distributions are taxed, but a Roth 401(k)’s aren’t. If you have to choose one, a good rule of thumb is to select traditional if you expect to be in a lower tax bracket during retirement and select Roth if you expect to be in the same or higher tax bracket during retirement. A financial professional can help you decide what’s right for you.
Transamerica Resources, Inc. is an Aegon company and is affiliated with various companies which include, but are not limited to, insurance companies and broker dealers. Transamerica Resources, Inc. does not offer insurance products or securities. The information provided is for educational purposes only and should not be construed as insurance, securities, ERISA, tax, investment, legal, medical or financial advice or guidance. Please consult your personal independent professionals for answers to your specific questions.
