Choosing a Traditional 401K vs a Roth 401K?
Enter your personal information to compare the results of traditional before-tax savings and Roth after-tax savings. You can click each for help.
The conventional approach is to compare your current tax bracket with what you think it will be in retirement, which would depend on your taxable income and the tax rates in place when you retire. If you expect it to be lower, go with pre-tax contributions. If you expect it to be higher, go with the Roth. If you’re not sure, go with both.
However, there are a couple of other factors that are often overlooked. One has to do with the way that the tax code is structured. When you contribute to a retirement plan, you’re contributing money that would normally be taxed at your marginal tax rate. However, when you withdraw money in retirement, some of the money is likely to be taxed at some of the lower tax brackets.