401(k) vs. Roth 401(k): Which One Is Better?

There are a lot of different options when it comes to retirement savings plans. But two of the most popular are the 401(k) and the Roth 401(k). So, which one is better?

The 401(k) is a traditional retirement savings plan that allows you to save pre-tax dollars. This means that your contributions into the 401(k) are deducted from your paycheck before taxes are taken out. And, because you're not paying taxes on that money now, you'll pay taxes on it when you withdraw it in retirement. A traditional 401(k) reduces your current taxable income. Then, when you retire and withdraw the money, it is taxed as ordinary income.

The Roth 401(k) is similar to the traditional 401(k), but with one big difference: your contributions are made with after-tax dollars. With a Roth 401(k), you contribute after-tax dollars, so your current taxable income is not reduced. However, when you retire and withdraw the money, it is tax-free because you've already paid taxes on the funds before the money was invested.

Both have their own benefits, but which one is better for you?

After taking a closer look at the 401(k) vs. Roth 401(k) debate, it’s clear that there is no easy answer as to which retirement savings plan is better. It really depends on your unique financial situation. If you think you’ll be in a higher tax bracket when you retire, a Roth 401(k) may be the better choice for you. Would you rather pay taxes on $60,000 or $4 million?! But if you’re worried about having enough money to cover your expenses in retirement, a traditional 401(k) may be the better option. Ultimately, the best way to find out which retirement savings plan is best for you is to talk to a financial advisor with you employer.

Want to know what a $500/month investment for 20 years, at 10% annual interest could grow into? Check out the below. A car payment of $500 could literally be standing between you becoming a millionaire. What will you decide?!

Let me know in the comments what type of retirement savings plan your employer offers, traditional 401(k) or Roth 401 (k).

Challenge: Schedule an annual meeting with your employer's 401(k) administrator to discuss your retirement plans and ensure you are on track to achieve your retirement goals. Getting a raise next year? Go ahead and plan to automatically invest the extra money.