Contributions to a Traditional 401(k) plan are made on a pre-tax basis, resulting in a lower tax bill, and higher take-home pay. Contributions made to a Roth 401(k) are made on an after-tax basis, which means that taxes are paid on the amount contributed in the current year. The reverse is true once you are eligible to make 401(k) withdrawals. Withdrawals from Traditional 401(k) plans are taxable, while those made from a Roth 401(k) are not.
Traditional 401(k) or Roth 401(k)?
Traditional 401(k) vs Roth 401(k)?
After-Tax Savings at Retirement
Traditional 401(k)
$ 177,592
Roth 401(k)
$ 208,932
At the start of your retirement, a Roth 401(k) would have $31,340 more in after-tax retirement savings than a Traditional 401(k) plan. However, were you to invest the tax-savings from a Traditional 401(k) in a savings account with the same rate of return as the 401(k), that account would have $69,644 at the start of your retirement.