What is the difference between Pre-Tax Savings and Roth Savings?
You can now choose what type of money you are contributing to the 401K Plan. With Pre-Tax Savings, the money you place in your 401K account is not federally taxed. This money grows until retirement and then once you retire as you take out the money it is then taxed. Roth Savings allows you to place federally taxed money into the 401K. The nice thing about this provision is that any earnings from the Roth contributions after a period of 5 years are tax-free. Basically, think of it as pay the taxes now or pay the taxes later. Please note, many studies have shown that the tax advantages of the Roth only benefit the very young or highly compensated. Please discuss these options with your tax professional.
Related Questions
- How much of an employees pre-tax compensation can s/he invest in a Savings Incentive Match Plan for Employees (SIMPLE) IRA?
- Can I purchase my income annuity with both qualified (pre-tax) and nonqualified (after-tax) retirement savings?
- Employer Tax Savings on employee Pre-tax deductions who gets them?
