New to the 401k stuff. I just saw Roth 401k; what is the difference from a 401k? I already have a Roth IRA from Fidelity. Is that the same?

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    Have you done any research yourself? This should be fairly easy to answer with a few internet searches. – D Stanley Mar 28 '18 at 16:39

You fund a Roth 401(k) with after-tax money but then you do not pay any tax on it (or the gains) when you take it out at retirement. You save taxes at retirement but pay the full amount now. This is smart if your income (and therefore tax rate) is relatively low today (and may be higher when you retire).

A traditional 401(k) is funded from pre-tax money. This lowers your tax bill today. But then you will pay income tax on it and the gains when you take it out at retirement. This is smart if your tax rate today is higher than it will be at retirement.

If you are in your peak earning years, a traditional IRA is likely to be a better choice for you. If you are just starting out or otherwise making much less than at other times in your life, the Roth option is likely to be better.

This is very similar to the Roth and traditional IRA situation. However, while the Roth IRA does not have a required minimum distribution, Roth 401(k)'s do, just like traditional 401(k)'s. This means after you turn 70.5, you will be required to take a certain amount out of your Roth 401(k) each year. For most people this is not much of a concern.

  • so does the term "Roth" means when used in these types of accounts as "after-tax money" or tax-free money you can trade with without paying taxes on your trade gains? – Patoshi パトシ Mar 28 '18 at 18:00
  • Roth means it was funded with after-tax money, which will not be taxed when it is pulled out. You can also move money from a traditional IRA or 401(k) into a Roth version by paying tax on it at the time you move it. – farnsy Mar 28 '18 at 18:03
  • It's also possible, in some plans, to put after-tax money in traditional 401(k), although the growth will still be pre-tax. – user102008 Mar 28 '18 at 18:39
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    I think in general no one has any real idea what the tax brackets will look like come retirement time, and as such, it is not a terrible idea to fund a little bit of both Roth and traditional accounts, if you can. – R. Hamilton Mar 28 '18 at 20:20

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