Regular vs. Roth 401(k): Which Is Better for You?
Choosing between a Regular and a Roth 401(k) can significantly impact your financial future. Understanding the differences between these two can help you make an informed decision.
Tax Treatment
Regular 401(k): Contributions are made pre-tax, reducing your taxable income now, but withdrawals during retirement are taxed.
Roth 401(k): Contributions are made after-tax, meaning you pay taxes now but can withdraw funds tax-free during retirement.
Consider Your Current and Future Tax Rates
If you expect your tax rate to be higher in retirement than it is now, a Roth 401(k) might be more advantageous because you lock in your current lower tax rate. Conversely, if you anticipate a lower tax rate in retirement, a Regular 401(k) could save you money on taxes in the long run.
Liquidity and Flexibility
Roth 401(k)s offer more flexibility as they allow for tax-free withdrawals of contributions (not earnings) before retirement under certain conditions. This feature can be beneficial if you anticipate needing access to your funds before retirement.
Conclusion
Your choice between a Regular and Roth 401(k) should align with your financial situation, tax considerations, and retirement goals. Making the right choice can be complex, but 4Wealth Financial Group can help. Contact us to discuss which option best suits your unique financial needs.
