Traditional vs Roth
The information below applies to 401(k) and Individual Retirement Accounts (IRA's).
Your contributions go to your account on a pre-tax basis - you have not paid taxes on the money
Taxes are paid when you withdraw money from your account on both what you contributed and any investment returns (earnings/losses)
Employer contributions, if any, go to the same traditional account as your contributions
Your contributions go to your account on an after-tax basis - you've already paid taxes on the money
Investment returns (earnings/losses) are tax free
You don't have to pay taxes when taking a qualified distribution
Generally speaking, a qualified distribution is a withdrawal from your account when you are 59.5 and older or permanently disabled.
Employer contributions, if any, go into a traditional account - taxes are paid on this portion of distributions
Talk to a Tax Professional
Talk to a tax professional to find out which option is right for you.
Ideas to discuss
Taxes on distributions
Elexys Thomas graduated from Utah Valley University (UVU) with a degree in Personal Financial Planning - a top 3 school for financial planning and has passed the Accredited Financial Counselor exam. She is passionate about sharing financial principles and helping individuals and families meet their financial goals. She'll be updating this page monthly to help you with your financial wellbeing. You can reach her at firstname.lastname@example.org