--- title: Traditional 401(k) Versus Roth 401(k) description: Learn the differences between a Roth 401(k) plan and a traditional 401(k) plan and how to know which one is best for your situation. image: https://blog.acgworldwide.com/hubfs/Blog%20Photos/Closeup%20portrait%20young%20woman%20with%20glasses%20scratching%20head.png --- [![acg-logo-header.png](https://blog.acgworldwide.com/hs-fs/hubfs/acg-logo-header.png?width=123&name=acg-logo-header.png "acg-logo-header.png")](http://www.acgworldwide.com/) - [Who We Are](http://www.acgworldwide.com/about-acg/) - [Selected Staff Bios](http://www.acgworldwide.com/selected-staff-bios/) - [Culture and Philosophy](http://www.acgworldwide.com/culture-and-philosophy/) - [Advisory Board Members](http://www.acgworldwide.com/advisory-board-members/) - [What We Do](http://www.acgworldwide.com/our-services/) - [Wealth Management](http://www.acgworldwide.com/wealth-management/) - [Investment Advisory](http://www.acgworldwide.com/investment-advisory-services/) - [Third Party Administration](http://www.acgworldwide.com/third-party-administration/) - [Retirement Plan Consulting](http://www.acgworldwide.com/401k/) - [Financial Planning Services](http://www.acgworldwide.com/financial-planning-services/) - [Tax Strategies](http://www.acgworldwide.com/tax-strategies/) - [Who We Help](http://www.acgworldwide.com/our-clients/) - [Businesses](http://www.acgworldwide.com/businesses/) - [Entrepreneurs](http://www.acgworldwide.com/entrepreneurs/) - [Individuals and Families](http://www.acgworldwide.com/successful-individuals-and-families/) - [Foundations and Endowments](http://www.acgworldwide.com/foundations-and-endowments/) - [Press & Resources](http://www.acgworldwide.com/acg-live/) - [Blog](http://www.acgworldwide.com/blog/) - [Company News](http://www.acgworldwide.com/company-news/) - [CBS 6 News Market Briefs](http://www.acgworldwide.com/company-news/bill-fitzgerald-of-cbs-6-news-interviews-with-sandy-wiggins/) - [Monthly Investor Insights](https://blog.acgworldwide.com/topic/monthly-insights) - [Quarterly Commentary](http://www.acgworldwide.com/commentary/) - [Cost of Living Adjustments](http://www.acgworldwide.com/colas-and-limits/) - [Important Disclosures](http://www.acgworldwide.com/acg-live/website-disclosure/) - [Contact Us](http://www.acgworldwide.com/contact-us/) [![Richmond Virginia](https://blog.acgworldwide.com/hs-fs/hubfs/ACG_June2016/images/ACGLogo_KOHi.png?width=280&height=112&name=ACGLogo_KOHi.png "Richmond Virginia")](http://www.acgworldwide.com/) [![Closeup portrait young woman with glasses scratching head](https://blog.acgworldwide.com/hs-fs/hubfs/Blog%20Photos/Closeup%20portrait%20young%20woman%20with%20glasses%20scratching%20head.png?width=830&name=Closeup%20portrait%20young%20woman%20with%20glasses%20scratching%20head.png "Closeup portrait young woman with glasses scratching head")](https://blog.acgworldwide.com/www.acgworldwide.com) # ACG Blog # Traditional 401(k) Versus Roth 401(k) By [Mona Jain](http://www.acgworldwide.com/selected-staff-bios/mona-jain/) - [Tweet](https://twitter.com/share) ![Mona Jain](https://blog.acgworldwide.com/hubfs/Mona%20Jain%20-%202018.png) Mona Jain Relationship Manager & Participant Education Specialist As most of us have either recently filed our 2018 federal income taxes, or are in the frantic last-minute scramble to do so, now is a good time to consider your retirement investment options. Recently, a growing number of employers offer a Roth 401(k) to complement their traditional 401(k) offerings. The questions for a lot of folks are: 1. What’s a Roth 401(k)? 2. Why would I want to contribute to the Roth 401(k)?  For many people, it can seem a bit daunting to decipher the various investment options in a 401(k) plan. Then, add TWO ways to save, phew! It might be a great time to check out the happy hour margarita specials at your local Mexican watering hole. Frozen strawberry with salt on the rim, anyone?Fear not! There are few key attributes to remember about traditional 401(k) versus Roth 401(k) that can help you decide what makes sense for you and your financial situation. And then you can head over to that happy hour special…. First, when you contribute to a traditional 401(k), you are putting in **pre-tax money**. In other words, if you earn $42,000 per year at your job, and decide to contribute $2,000 to your traditional 401(k), then you will pay income taxes on $40,000. The $2,000 you contributed will not be taxed when it is added to your retirement account. That’s your first tax break. Your second tax break happens when your investments in your traditional 401(k) grows tax-deferred. That means that as your investments in your traditional 401(k) may be increasing in value, earning interest and dividends, you aren’t paying taxes on those gains. When you decide to retire after age 59 ½, you will then pay your ordinary income tax rate on your distributions (i.e., the money you take out) from your traditional 401(k). In contrast, you would contribute **post-tax money** in your Roth 401(k) account. Using the same example, if you earn $42,000 per year at your job, and decide to contribute $2,000 to your Roth 401(k), then you will pay income taxes on the $42,000. The $2,000 you decided to add to your Roth 401(k) account will be taxed before it is added. For an apples-to-apples comparison to get to the same take home pay, you would be contributing either $2,000 to the traditional 401(k) or $2,000 minus taxes for the Roth 401(k). If your tax rate is 15%, you would be contributing $1,700 to your Roth 401(k). Your first tax break happens when your investments in your Roth 401(k) are growing tax-deferred. That means that as your investments in your Roth 401(k) may be increasing in value, earning interest and dividends, you aren’t paying taxes on those gains. Your second tax break with a Roth 401(k) happens when you decide to retire. You will NOT pay your ordinary income tax rate on your distributions from your Roth 401(k), as long as your money has been in the account for over 5 years and you are over 59 ½ years old. Soooo, should you invest in your Roth 401(k) or traditional 401(k)? Well, it depends. You may want to consider investing more heavily in your traditional 401(k) if you believe: - your tax rate will be lower at retirement, - you’re currently making more money now than in your younger years, or - you could benefit from lowering your current taxable income. You might want to consider Roth 401(k) contributions if you think: - your tax rate at retirement will be higher, and - you’re young with many years to invest. - You may also want to contribute to your Roth 401(k) if your income level prevents you from contributing to a Roth IRA. Remember, you’re only able to contribute up to the limit of $19,000 (plus $6,000 for those ages 50 and older) for Roth 401(k) and traditional 401(k) deferrals combined for 2019.  Since my crystal ball recently got a crack and my fortune-teller is on vacation, I don’t know what the tax rates are going to be in the future. In a situation where the tax rates increase substantially in the future, and tax rates are lower now, more heavily investing a Roth 401(k) may be helpful. In the opposite situation, if tax rates are higher now and may significantly decrease when I retire, putting more money in the traditional 401(k) could be a good move.  Because of that uncertainty, it might be worthwhile to contribute to both the Roth 401(k) and traditional 401(k) “buckets.” For more tips in how to get financially fit this spring, check out our [blog post](https://blog.acgworldwide.com/compensation-whats-in-a-name-2). If you have any questions on achieving your financial goals, including retirement, through a financial plan and investments, ACG is here to help.    [![Talk to a Retirement Plan Expert Today](https://no-cache.hubspot.com/cta/default/2254275/2433b4bc-f1cf-4b00-bb31-7bb39b3273f3.png)](https://cta-redirect.hubspot.com/cta/redirect/2254275/2433b4bc-f1cf-4b00-bb31-7bb39b3273f3) — Posted on April 10, 2019 by [Mona Jain](https://blog.acgworldwide.com/author/mona-jain) [Mona Jain](https://blog.acgworldwide.com/author/mona-jain) — Topics: [401(k)](https://blog.acgworldwide.com/topic/401k), [Retirement](https://blog.acgworldwide.com/topic/retirement) ### Subscribe to Email Updates ### Posts by Topic - [401(k) (105)](https://blog.acgworldwide.com/topic/401k) - [Retirement (105)](https://blog.acgworldwide.com/topic/retirement) - [Monthly Insights (80)](https://blog.acgworldwide.com/topic/monthly-insights) - [Financial Planning (62)](https://blog.acgworldwide.com/topic/financial-planning) - [Investments (50)](https://blog.acgworldwide.com/topic/investments) - 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