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Roth 401(k)

What is a Roth 401(k)?

A Roth 401(k) is an employer-sponsored retirement savings account.

Unlike a traditional 401(k), you don’t receive a tax break when you contribute to a Roth 401(k); you pay income tax on the money you contribute. Your contributions grow tax-free in the Roth 401(k). When you are 59 ½, you can withdraw the money from your account tax-free.

With a traditional 401(k), you receive a tax break for your contributions, but the withdrawals you take after age 59 ½ are taxed at your ordinary income rate.

The bottom line: If you prefer to pay taxes now and have tax-free income in retirement, choose a Roth 401(k). If you prefer to pay tax later and get a tax break now, choose a traditional 401(k).