Watch the video to get some help deciding.
Roth vs Pre-Tax: What’s the difference?
Pre-tax contributions are where you don’t pay tax on the contribution now, but you have to pay tax on any money you take out of your account in retirement.
Roth, or after tax contributions are where you pay tax on your contribution now, but you don’t have to pay tax at all when you withdraw the money in retirement.
There are tons of different opinions and perspectives on which option to choose. It all comes down to the tax rate you’re paying now, and the tax rate you’ll pay in retirement.
Since our government can change tax rates, we can’t be sure of what your tax rate will be when you retire.
Which should you choose?
But, there are some general principles for making an educated choice when choosing between roth vs pre-tax contributions.
Here is a general rule of thumb. If you expect to earn raises, and have decades left in your career, Roth contributions might be a good idea for you.
But if your pay will likely remain stable, and your retirement outlook is shorter, you might want to consider pre-tax contributions.
Or Maybe a Little of Both?
A third option is to contribute some money to pre-tax and some money to roth.
That way, you’re getting a little tax benefit now, and when it comes time to retire you can choose from year to year which bucket to take from.
Roth Vs. Pre-Tax in Your 401(k) Plan
The Most Important Thing . . .
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