A Roth 401(k) is a new option that many companies are now offering their employees. The Roth 401(k) is similar to the 401(k) since it uses the same investment methods and tools. You will have the same types of accounts to choose from, and be able to choose if you want to invest aggressively or conservatively.
The Roth 401(k) investments are after tax investments. This means that any contributions will come out of your paycheck after you have paid income taxes. You will not get a tax break or lower your taxable income when you choose to invest in a Roth 401(k). However, the Roth 401(k) withdrawals are tax free, whereas you will be taxes on the traditional 401(k) withdrawals.
As you choose between a 401(k) and a Roth 401(k), you should consider many things. You may want to estimate the tax bracket you will be in when you are making the withdrawals, as this will affect the amount of tax you may have to pay. Additionally it is important to consider the amount of money you will be paying taxes on. If you pay taxes on your contributions, then you will be paying taxes on less money, then if you pay on what you earn from your 401(k).
There can be definite tax advantages to a Roth 401(k). You may want to talk to your CPA or financial planner and decide how this could benefit you. You will still have the annual contribution limits that accompany a traditional 401(k). While you can have both a traditional and a Roth 401(k), the total annual contribution limit stays the same, it does not double since you have two accounts.
