When saving money through your job’s retirement plan, you often get to choose between Roth 401(k) vs. traditional 401(k) contributions. So, which is best?

The choice comes down to when you want to pay taxes and other factors.

- With Roth 401(k) contributions, you pay tax on all of your income today, but you ideally get tax-free income in retirement. For that to work, you need to satisfy specific IRS rules.
- With traditional pre-tax 401(k), you reduce your income by the amount you contribute to the plan. That helps you save on taxes this year, and it might make it easier to save money in your plan.

🌞 Subscribe to this channel (it's free):    / @approachfinancial  

Get free retirement planning resources: https://approachfp.com/2-downloads/
🔑 9 Keys to Retirement Planning
🐢 6 Safest Investments

Note that this applies to other types of plans as well. For example, if you have Roth 403(b), 457, or TSP—or even Roth Solo 401(k)—things are similar. Check with your plan administrator and tax expert just to be sure.

Info from this video:
IRS on Roth accounts: https://www.irs.gov/retirement-plans/...
Calculator shown in video: https://docs.google.com/spreadsheets/...
Read the article: https://www.approachfp.com/roth-401k-...

One way of making the decision is looking at tax brackets. When will you be in a lower tax bracket? You might want to pay taxes at the lowest rate possible. Other factors include how your retirement income is going to look. Having too much income could cause you to pay more tax on Social Security benefits or pay higher Medicare premiums. Or, if you retire early and get health coverage through a Marketplace or Exchange, a high income may prevent you from getting tax subsidies that help you save money.

Ultimately, you need to consider the big picture as well as this year’s tax impact. That takes some time and effort, but this is an important decision for your future.

Learn about working with me at https://approachfp.com/
✔️ Flat-fee and hourly advice options
✔️ One-time projects available
✔️ Investment advice (optional)

Justin Pritchard, CFP® is a fee-only fiduciary advisor who can work with clients in Colorado and most other states.

CHAPTERS:
00:00 Traditional 401(k) vs. Roth 401(k)
01:38 Basics and Why It Matters
03:47 Roth 401(k) vs. IRA
05:06 Similarities Between Roth and Traditional 401(k)
06:16 Example: Taxes, Contributions, and Withdrawals
10:15 How Contributions Work for Pre-Tax or Roth 401(k)
11:52 How Distributions Work for Roth or Pre-Tax 401(k)
16:14 Can You Spend All of Your Money?
17:49 Pros and Cons of Roth 401(k) vs. Traditional
19:34 Which Is Best? Which Should You Choose?
21:25 When Traditional 401(k) Makes Sense

IMPORTANT:
It's impossible to cover everything you need to know in a video like this. The only thing that's certain is that you need more information than this. Always consult with a CPA before making decisions or filing a tax return. This is general information and entertainment, and is not created with any knowledge of your circumstances. As a result, you need to speak with your own tax, legal, and financial professional who is familiar with your details. This video is not a substitute for individualized, personal advice. Please verify with your plan administrator when employer plans are involved. This information may have errors or omissions, may be outdated, or may not be applicable to your situation. Investments are not bank guaranteed and may lose money. Opinions expressed are as of the date of the recording and are subject to change. “Likes” should not be considered a positive reflection of the investment advisory services offered by Approach Financial, Inc. The Comments section contains opinions that are not the opinions of Approach Financial, Inc., and you should view all comments with skepticism. Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration.