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Roth 401k vs Traditional 401k

One of the chief retirement plans available in the US, the 401k retirement plan provides retirees and older adults with high returns and financial stability. There are a number of 401k plans that you can choose from as per your needs and preferences. Among them, the Traditional 401k and the Roth 401k plans are the most preferred. Let us compare both the plans and evaluate the pros and cons.

Usually, both the traditional 401K accounts and the Roth 401k accounts are employer sponsored and so it the employee can decide whether to directly pay the contributions or whether they should be deferred to the account. Compared to the traditional ones, the Roth 401k plans are a blend of the traditional 401(k) and Roth IRA plan which makes it more useful for older adults who are dealing with any kind of investments.

In comparison to the traditional 401k , those who are 401k plan, those who covered under the Roth 401k can choose to make the contributions on a post-tax elective deferral basis. Usually, the combined elective deferrals of an employee can exceed $16,500 for a tax year if the employee is under the age of 50. One can contribute an added amount of $5,500 to the account if he or she is over the age of 50.

Compared to the traditional 401k account, the Roth version can be funded with after-tax dollars. In after tax dollars, the taxes for the funds are paid in the present year. An added benefit of Roth 401k is that it provides tax free distribution like the traditional version of the Roth plans.

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