Unlike a Roth IRA, a traditional 401(k) offers tax benefits on the front end. Your contributions go in tax-deferred, which lowers your taxable income and gives you a tax break for the year. But you’ll pay taxes on any withdrawals you take out at retirement . . . that includes all your contributions, your employer’s contributions, and all the growth your investments earned over the years too. Bummer.
But if your employer offers a Roth 401(k) plan, it has completely different tax benefits. We’ll explore those below.