Do you think your marginal tax rate in retirement will be higher than your current rate? Roth 401(k) might be a powerful wealth-building tool if the answer is yes.
Roth 401 plans can be a powerful tool for building wealth for retirement, but they’re not as frequently used as their traditional counterparts.
Where the two types of 401 plans differ, however, is in the way they’re taxed. Traditional 401 plans are funded with pre-tax dollars and the account holder is taxed when they withdraw the money, whereas employees contribute to a Roth account with money that has already been taxed, which can then be withdrawn tax-free.
“Bottom line, making an informed Roth 401 decision is all about understanding your tax situation,” said Jonathan Duggan, a certified financial planner and wealth adviser at Hemington Wealth Management.
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