Traditional vs. Roth Contributions

Updated: Nov 30, 2020

Your financial future can be dramatically impacted by simply having one type of retirement account over another. Deciding to have a Roth 401(k) or Traditional 401(k) can either cost or save you money in the long run. An analogy we like to ask is: Would you rather pay taxes on the seeds or pay taxes on the harvest?

Key Points:

  • The difference between a traditional and a Roth 401(k) comes down to when you pay the taxes.

  • While Roth accounts have generally been advised for younger savers, a Roth 401(k) can also give older savers a chance to benefit from tax-free distributions.

  • If your employer offers both, you don't necessarily have to choose one or the other. Consider splitting contributions between the two.

Both have their advantages and it's up to you to decide which type of account best suites your situation.