The regular 401(k) savings plan allows you to set aside a portion of your income towards retirement. The plan offers tax benefits. However, in January 2006, a new option was made available called the Roth 401(k) type tax treatment that employers can offer their employees.

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As of today, approximately 25% of all employers offer the Roth option.

No Taxing on Withdrawals on Roth 401(k)

For people who will be be in a higher tax bracket later down the line when they retire, this option will save them tax when they withdraw unlike a regular 401(k). Taxation is applied before the contribution is made instead

Also, you are allowed to invest more into a Roth Option. In a regular 401(k) option, since your money is not taxed, you can invest upto $15,500 without tax. However, in a Roth Option, since you invest after taxation, you can invest a full $15,500 after taxation. This allows you more money to salt away, if you like to part with the moolah for a rainy day.

Also, if you’re afraid of Tax rates increasing in your old age, then you definitely want to go for the Roth Option, since the taxes are already paid by you at the time of investing.

Typically, a good idea is to invest some money in a Roth, and some in a regular 401(k) option. This way, you can combine the best of both worlds.