Lets start with the basic difference between the Roth and traditional 401k: when the money is taxed. Roth 401ks get taxed now, before the money is put into the savings account. Traditional 401ks get taxed later, when you take the money out.
Roth or Traditional? Deciding Which 401k Is Right for You
Many companies are now offering both plans, leaving employees with one more confusing issue to work out. How do you know which plan is right for you? The easiest way to find out is by sitting down with an investment advisor, who can look at your income, your expected income and recommended contributions. But you can take the time and figure this out yourself, as well.
The Roth 401k works great for people who freelance, are self employed or work multiple part-time jobs, because it allows them the benefits of a 401k without the company affiliation. The Roth 401k is a prepayment system. As you would need to decide when buying pre-paid phone cards, all-inclusive vacations or season tickets to your favorite teams stadium, you must way: is this pre-payment worth it? Will the tax rate at my retirement be so different that I should pay now?
Perhaps yes, but probably no. Speaking to a certified financial planner who spends all his days looking at situations like this could help you to make the best decision for yourself and your family. Though season tickets sound like a great idea, they arent if you are going to miss half the games because of your work schedule. Paying taxes up front on your 401k could be the same. You need to consider state and national tax rates where you are paying taxes now may not be where you plan to retire, and if you are in a high-tax state currently the traditional 401k makes much more sense and could save you thousands of your retirement investing dollars.