401k vs Roth 401k Notes:

When you contribute to a traditional 401(k), you’re contributing on a pre-tax basis, meaning you get a tax break upfront but have to pay taxes when you take the money out in retirement. By contrast, with a Roth account, you pay in with after-tax dollars, and the money you contribute, including earnings, comes out tax-free in retirement.

https://blog.wealthfront.com/roth-401k-vs-traditional-401k/ (good example in this article)

http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/articles/2016-06-03/should-you-use-a-roth-401-k-or-a-traditional-401-k

http://www.forbes.com/sites/ashleaebeling/2014/08/19/employees-are-falling-for-roth-401ks/#3405efcf7b4c

http://time.com/money/4258994/traditional-401k-roth-401k-retirement/

 

Reasons to pick a Roth 401k and Stats

  • With a Roth, you’ll pay taxes on the money you invest now, but no taxes when you withdraw the money at retirement.

  • If you’re in a low income bracket now — for instance, if you’re young and just starting out — and think you’ll be in a higher tax bracket at retirement, a Roth can make a lot of sense.

  • You can tap a large portion of your Roth 401(k) in retirement to pay for, say, a medical emergency without incurring the tax bill you would have with a traditional 401(k).

Questions to ask yourself- Do you have the self-control and spending discipline to save money now to pay off taxes later? Or do you need the crutch of the Roth account?

  • Young workers may be attracted to the Roth option since you lock in low tax rates up front. But they’d be hurt if overall tax rates were actually lowered in 30 years in favor of, say, a value-added tax.

  • Roths are favored by the young. More than 17% of younger workers (in their 20s) elected to make Roth contributions to their 401(k)s compared to fewer than 9% of older workers (in their 50s).

  • One way employers can increase participation and savings rates is by adding a Roth feature to the 401(k) plan, the Aon Hewitt report says. In 2013, employees who made Roth contributions saved more on average than their non-Roth-using counterparts: 10.3% v. 7.7% respectively.

Also possible to invest in both

  • By using both a Roth and a traditional 401(k), you’d lower at least a portion of your current taxable income, maintain a diversified retirement plan, and give yourself some cover if future tax rates change.

 

Table 1. Traditional 401(k) vs. Roth 401(k) (Source: GFGFinancial.com)