Dave Ramsey On Roth vs. Traditional 401(k)

"The Roth absolutely mathematically kicks the traditional [IRA's] butt. And here's why: If you take $200 a month from age 25 to age 65, 40 years, and you invest that in a decent growth stock mutual fund, you're gonna have $2.5 million dollars in there. However, only $96,000 of the $2.5 million is actual principal that you put in. So if you did a traditional [401(k)], you would have got a tax break on $96,000. You would have not paid taxes yet on $96,000."

"Created under the Revenue Act of 1978, as Section 401(k) of the Internal Revenue Code, 401(k) plans started to become popular in the early 1980s, and really gained steam as defined benefit pension plans fell out of favor in the 1990s. Then, in 2001, the Economic Growth and Tax Relief Reconciliation Act created a new savings vessel called the Roth 401(k), and this became available to employers on January 1, 2006."

Contributing $200 monthly from age 25 to 65 into a growth fund can grow to roughly $2.5 million while total contributions equal about $96,000. Traditional 401(k) contributions are pre-tax, giving an upfront tax break on the $96,000 principal but subjecting the entire $2.5 million to income tax upon withdrawal. Roth 401(k) contributions are taxed before contribution, so both principal and investment growth are withdrawn tax-free. 401(k) plans originated under the Revenue Act of 1978; the Roth 401(k) was created by the 2001 EGTRRA and became available to employers on January 1, 2006. Regular 401(k) can sometimes be preferable depending on individual tax situations.

Read at 24/7 Wall St.