When I talk with clients about their retirement savings, one of the first questions I ask is: “Are you contributing to traditional or Roth in your 401(k)?”
The most common answer I hear: “I think I make too much money to contribute to a Roth.”
Here’s the thing — that’s true for a Roth IRA, but not for a Roth 401(k). There are no income limits for Roth 401(k) contributions. That means even high earners can take advantage of tax-free growth and tax-free withdrawals in retirement. So how do you decide which side to use — traditional or Roth?
Here are a few key factors to think about:
- Your tax bracket now vs. in retirement
- How much time your money has to grow
- Your mix of assets (pre-tax, Roth, brokerage, real estate, etc.)
- Whether certain deductions or credits matter to you this year
There’s no one-size-fits-all answer — but knowing that the Roth 401(k) is available to you (regardless of income) can open new planning opportunities.
Want to talk more? Contact Cole Nicholson | 952-277-9222
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.