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At the company where I work, I have three options for contributing to my 401(k).
- Before Tax
- After Tax
I'm not sure if I totally understand what each of these means. This is what I am thinking happens. The money that I contribute Before Tax is eventually taxed when I withdraw from my 401(K) when I retire. The money that I contribute to Roth and After Tax is taxed up front, and when I retire, it is not taxed.
If this understanding is incorrect, then let me know.
Otherwise, here is my question. If I am less than two years into my working career, is it smarter to contribute to Roth/After Tax (as opposed to Before Tax) because I make a comparatively smaller amount than when I retire?
I have asked others about this, but I don't think I am understanding the particulars of this, and it would really help if someone explained this to me clearly.
On a somewhat-related note, my company matches my contributions to a point, and that is done Pre-Tax. If I contribute 6% or more of my salary, they will contribute equivalently up to 4% of my salary.