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Ask Dave

Is There A Reason Not To Do A Roth 401(k)?

Robert says his company offers both a traditional and Roth 401(k). They match up to 3% in both scenarios. Is there any reason he should take the traditional 401(k)?

QUESTION: Robert in Spokane says his company offers both a traditional and Roth 401(k). They match up to 3% in both scenarios. Is there any reason he should take the traditional 401(k)? Dave recommends taking the Roth 401(k).

ANSWER: I can’t think of a case—unless you were two or three years from retirement. I’m 50. I do a Roth. Completely Roth 401(k). Be aware that the match is not Roth. It’s a pretax match, and that portion, when you take it out at retirement, will be taxable. The portion that you put in plus the growth associated with that will be tax-free. I’m loading my Roth, and I’m 50.

If we did $18,000 in a traditional 401(k) and $18,000 in a Roth and you get to retirement, it’s going to grow to the exact same amount. One’s going to have taxes, and one isn’t. You definitely do the one that’s tax-free because most of what’s in that account is growth—not what you put in. It’s a no-brainer if you’re maxing it out.

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