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Prev Next  Caiaimage/Paul Bradbury/Getty Images 6 minute read Published October 17, 2022 CheckmarkExpert verified Bankrate logoHow is this page expert verified? At Bankrate, we take the accuracy of our content seriously. “Expert verified” means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity. The Review Board comprises a panel of financial experts whose objective is to ensure that our content is always objective and balanced. Their reviews hold us accountable for publishing high-quality and trustworthy content. About our Review BoardWritten by James Royal Written by James RoyalArrow RightSenior investing and wealth management reporter Bankrate senior reporter James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more. James Royal Edited by Brian Beers Edited by Brian BeersArrow RightManaging editor Brian Beers is the managing editor for the Wealth team at Bankrate. He oversees editorial coverage of banking, investing, the economy and all things money. Brian Beers Reviewed by Robert R. Johnson Reviewed by Robert R. JohnsonArrow RightProfessor of finance, Creighton University Robert R. Johnson, Ph.D., CFA, CAIA, is a professor of finance at Creighton University and chairman and CEO of Economic Index Associates, LLC. Individuals who want to save for retirement may have the option to invest in a 401(k) or Roth 401(k) plan. Both plans are named for the section of the U.S. income tax code that created them. Both plans offer tax advantages, either now or in the future. With a traditional 401(k), you defer income taxes on contributions and earnings. With a Roth 401(k), your contributions are made after taxes and the tax benefit comes later: your earnings may be withdrawn tax-free in retirement. A traditional 401(k) is an employer-sponsored plan that gives employees a choice of investment options. Employee contributions to a 401(k) plan and any earnings from the investments are tax-deferred. You pay the taxes on contributions and earnings when the savings are withdrawn. As a benefit to employees, some employers will match a portion of an employee’s 401(k) contributions. Income taxes on matching funds also are deferred until savings are withdrawn. An employer-sponsored Roth 401(k) plan is similar to a traditional plan with one major exception. Contributions by employees are not tax-deferred but are made with after-tax dollars. Income earned on the account, from interest, dividends, or capital gains, is tax-free. The Securities and Exchange Commission does not regulate or oversee retirement plans such as pensions or 401(k) plans. If you have a question about your retirement plan, please contact: If you have a complaint about your plan, you can learn the procedures for filing a claim on the EBSA website. You can find information about pensions on the EBSA website, and learn how fees and expenses affect the total return you will receive for retirement from your 401(k) plan. FINRA's Smart 401(k) Investing explains how to enroll in and manage your 401(k) account, and answers questions on eligibility, rollovers, hardship withdrawals, and other topics. |
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