"Roth 401(k) accounts are offered by a growing number of employers, as Orman explains. They also offer you tax breaks in retirement, instead of when you make contributions. For example, with a traditional 401(k), if you invested $10,000 in 2025, this would reduce your 2025 taxable income by the $10,000 you contributed. The government subsidy would make it easier to invest because of the fact that your take-home pay isn't affected as much. The tax savings offset some of the contributions you made."
"However, if you choose a Roth 401(k) instead, you don't get that $10K in tax savings. Instead, you contribute with after-tax money. In exchange, though, money not only grows tax-free (as it does in regular 401(k) plans as well). It withdrawn tax-free as a retiree, provided you follow a few basic requirements. So, you essentially skip your tax savings now in favor of more tax savings later in life."
Roth 401(k) accounts allow after-tax contributions that grow tax-free and can be withdrawn tax-free in retirement if basic requirements are met. Traditional 401(k) contributions reduce taxable income in the contribution year, easing cash flow by lowering current taxes. Roth contributions forego that immediate tax break in exchange for tax-free distributions later. Employers increasingly offer Roth 401(k) options, making them accessible to many workers. Choosing a Roth 401(k) shifts tax savings from the contribution period to retirement, which can maximize net retirement income for individuals who expect higher or similar tax burdens later in life.
Read at 24/7 Wall St.
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