What is the basic difference in the concept of a Roth 401(k) deferral versus a “traditional” 401(k) pre-tax deferral?
With a Roth 401(k) deferral, the deferral amount is made in after-tax dollars. Also, the earnings on the Roth deferrals will be tax-free if the contributions remain in the plan for at least five years after Roth deferrals commence and the participant does not take withdrawals before attaining age 59½ (death and disability also qualify). A traditional 401(k) deferral is tax deferred at the time of contribution and both the deferral and the earnings on the deferral are taxable when distributed.
