How Does it all Work?

Ever wonder about the Nuts & bolts of 401(k) Plans?

What tools would you use to tune your retirement plan engine? This video will help you understand some of the similarities and differences between pre-tax (or traditional) 401(k) plans and ROTH 401(k) plans as well as learn more about how much to give & when.

Trying to decide between a pre-tax 401(k), a Roth 401(k), or both?

Not all 401(k) plans will offer both types, but in case they do, here are some of the similarities as well as differences…

What is a Roth 401(k)?

 

  • Contributions are made after taxes have been subtracted from your paycheck
  • Your contributions grow tax free
  • You can start receiving distributions at 59 ½, if you’ve had the 401(k) ≥ 5
    years
  • When vou receive distributions from vour contributions during retirement, you don’t report it on your taxes

VS.

What is a pre-tax 401(k)?

  • Contributions are made before taxes have been subtracted from your paycheck
  • Your contributions grow tax free
  • You can start receiving distributions at 59 ½,  no matter how long you’ve had your 401(k)
  • When you receive distributions during retirement, you do report it on your taxes
  • This is also known as traditional 401(k)

Did you get a raise? Have a little wiggle room in your budget?

Increasing the percentage you contribute to your 401(k) every year can have big pay-offs… check out the difference between Escalating Elli’s and Stubborn Sidney’s hypothetical account values over time.

Account growth of auto-escalation vs. a static contribution

As always, feel free to reach out if you have questions about your 401(k) plan!

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