Both a tax-deferred 401(k) and a Roth 401(k) offer tax benefits but they vary in the way that they offer those benefits. A tax-deferred 401(k) reduces your taxable income and saves you on taxes today. There are different types of tax-deferred 401(k)s like a traditional 401(k), a simple 401(k), and a safe harbor 401(k), and they all reduce your tax liability by working in the same way. All tax-deferred 401(k)s set aside their pay before taxes are applied, lowering your taxable income. This money stays tax-deferred until you start withdrawing it post-retirement at which point you will pay taxes. Contributions to a Roth 401(k) will not reduce your taxable income upfront, instead, it will reduce the amount you owe as a retiree withdrawing from your Roth 401(k). This is because your contributions to a Roth 401(k) are not taken out of your paycheck before taxes are withheld like in a traditional 401(k), instead, they are taken out after taxes. By paying the taxes as you contribute to your Roth 401(k) you will not have to pay taxes on the funds you withdraw. In general, people whose income during retirement will be in a lower tax bracket than when they are employed opt for a tax-deferred 401(k). People who expect their retirement income to put them in a higher tax bracket opt for a Roth 401(k).