Life is full of options. Sometimes, though, it can be difficult to choose between two options that both offer benefits. Take 401(k) plans, for instance. With a traditional 401(k) plan, a participant’s contributions are tax-deferred and the contributions and earnings are subject to tax upon withdrawal. With a Roth 401(k) plan, the contributions are made on an after-tax basis and the earnings (like the contributions) are not subject to income tax upon withdrawal (when certain conditions are met). How then, does one choose between the two?
According to an article from Kiplinger magazine, it depends on the person’s tax bracket and what they expect their income and tax bracket to be when they retire. If a participant thinks his/her tax bracket is going to be the same or higher at retirement, they might want to consider the Roth. If a participant has less time to retire, it’s unlikely that his/her tax bracket would be more at retirement, which is why he/she might be better off taking advantage of the tax break now and contributing to a traditional 401(k).
At NADART, we think choice is a good thing, which is why we’re pleased to offer both Roth 401(k) and traditional 401(k) plans at some of the lowest costs in the industry. If you’re interested in learning more about our 401(k) plans or about adding the Roth 401(k) contribution to your current plan, please contact a NADART representative at (800) 462-3278, ext. 7161 or e-mail nadart401k@nada.org.