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Ask Dave

Always Take the Roth

Jennifer says her job offers a regular 401(k) and a Roth 401(k). Which should she take?

QUESTION: Jennifer on Twitter says her job offers a regular 401(k) and a Roth 401(k). Which should she take?

ANSWER: Roth, because it grows tax free.

Here’s the thing: If you put X dollars in your 401(k) and you get to retirement and there’s $1 million in there, if it’s a Roth 401(k), the $1 million in there at retirement is tax-free. No taxes. If it’s in a regular 401(k) and you’ve got $1 million in there, you pay taxes on the $1 million, which is going to be $300,000—maybe $400,000 at the rate we’re going. You’re going to lose 30% or 40% of your money in taxes. Make it a Roth. Always make it a Roth. If you’ve got years and years and years to go, which most people do, then make it a Roth. It’s that simple.

My personal 401(k) is a Roth. Definitely. It’s what we do.

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