What’s the difference between a traditional and Roth 401(k)?

• Traditional 401(k): Contributions are pre-tax, reducing your taxable income today, but withdrawals are taxed in retirement.
• Roth 401(k): Contributions are made after taxes, but withdrawals are tax-free later*. If you expect higher taxes in the future, Roth may be beneficial. Many people choose a mix of both for flexibility.

^{*To qualify for the federal tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 1/2 or due to death, disability, qualified education expenses, qualified medical expenses, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending upon state law, Roth IRA distributions may be subject to state taxes.}