March 13, 2019, Life Hacker - Reader Question: Should I invest in a 401(k) or Roth 401(k)?
If you have a choice at work of 401(k) or Roth 401(k), how to choose? Is it based on your overall salary? Overall household income?
As with a Roth IRA, the main considerations for a Roth 401(k) are your income and age. Roths are more valuable for people in lower income brackets (likely at the beginning of your career
If you pick a Roth, then, you’re essentially “locking in” your current tax rate, because you’re assuming it will be lower than your retirement rate. That means when you make a withdrawal down the line, you won’t pay taxes on the money, whereas with a traditional 401(k), you will.
Both tax schemes are beneficial in different ways. If you’re young, though, a Roth is probably a better option. “If you’re in a lower tax bracket, choose the Roth,” says Howard Pressman, a Virginia-based Certified Financial Planner. “A current day tax deduction isn’t that valuable to you, so why not enjoy the tax-free growth.”
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