Pre-Tax, Roth, or After-Tax

The pre tax 401K reduces your taxes so your net check is larger each month. This means that you pay no taxes on the money you are putting into the pre tax 401K.

It also means that you are not paying the federal and state tax on that money at the end of the year. So if you put 12,000 in your 401K your taxable income is reduced by the 12,000.00

The down side is that when you take the money out you will pay taxes on it. If you are making less money than the taxes will be less . Most people make less after retirement.

The After tax (roth) 401K taxes are taken out so you will not have to pay taxes when you draw the money out at retirement time.

Your net amount will be less with this type of 401K. It is taken out of your net after taxes.

The down side is that you may be paying higher taxes on it now than you would at retirement if you were making less money.

It is a matter of preference, some open both accounts a pretax 401K at work and a roth at a bank or other institution.

If you want more bring home pay than you need to go with the pretax. If you don't want more income right now and would rather not pay taxes on it when you retire than you go with the after tax 401K.

They are both good programs and regardless of which one you go with you should pick one and start saving for retirement because you will not be able to live on social security.

Shirley

Roth and After-tax aren't the same thing...very similar but most 401(k) Plans don't offer After-Tax contributions anymore...just pre-tax or Roth. Roth offers the opportunity to get the principal AND earnings tax free with a qualified distribution whereas After-Tax only offers the principal tax free at withdrawal (still must pay taxes on any earnings). You must be at least 59 1/2 and have the Roth for 5 years in order to get the tax benefit from the Roth. It really depends on what tax bracket you're in and where you think you'll be in retirement...soooo many calculators online to help you determine which is best...you can also contribute to both (Roth & pre-tax) to hedge your bets. Good luck!