Retirement plan decisions made easy
Regular or Roth 401k?
The National Center for Policy Analysis has published a paper suggesting that Roth 401k plans are better than regular plans if tax rates are headed up.
Background: in some cases, an employee can choose either a Regular 401k or a Roth 401k. In a regular plan, the money going in is not taxed, but all the money coming out of the plan is taxed. A Roth is just the opposite: you have to pay taxes on the money you contribute, but all the money you take out is tax free.
The two plans are pretty much the same except for two elements. First, if your future tax rate will be higher than it is now, the Roth is better. The new study makes this point clearly.
Second, if you want to put the maximum amount allowed by law into your account, the Roth is better. Otherwise, the two plans are the same.
Read the new study here. Read the lesson from The ABCs of Your 401k here.
Disclosure: I'm a Senior Fellow at the NCPA, though I did not have a hand in the report on 401ks.
You are not logged in. Log in or create an account.
Click here to sign up for our monthly newsletter delivered via email.
Recent Posts
Easier to Sell Company Stock in Your 401k
401k Plans' Investment Allocation: Too Conservative in the Rebound
Postponing Retirement Because of Your 401k Account?
Many Companies Restoring 401k Match
401k Contribution Limits for 2010
401k Investing: If You Didn't Panic, Then Rebalance