By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC
401k plan participants often wonder whether they should contribute their hard-earned money to a Roth 401k or a pre-tax 401k account. Depending on their age and tax bracket, the answer may be both!
Many 401k plan participants have the option of making pre-tax 401k contributions and Roth 401k after-tax contributions. Roth 401k contributions (along with all accumulated earnings) can be withdrawn tax-free if distributed due to a qualifying event from a Roth 401k account that has been in existence for at least five years.
Pre-tax 401k contributions (and the associated earnings) are taxable when removed from a 401k plan. I have found that 401k participants are generally unclear on how they should choose between these two options. Following are some thoughts. [Read more…]