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Retirement Plans: Understanding Roth and Traditional 401(k)

by AOG Wealth Management

Your salary covers the essentials – food, family, sometimes vacations, or even a new home – if you manage your budget right. And if you do not plan properly for retirement, you’re likely to find yourself in a pinch when it comes to enjoying your retirement years. Making regular contributions to a retirement plan can help you build a healthy nest egg for your future.


The first step is to understand the ins and outs of different saving tools, including the basics of Roth and traditional (401)k plans. AOG Wealth Management, the experienced name in tax and estate planning in Washington, DC and Northern Virginia, explains the unique features of each plan. We also offer tips to help you take advantage of both.

Traditional (401)k: Pre-Tax Contribution

Employees under traditional 401(k) plans make contributions before they pay taxes. This is a win-win situation for many, since it reduces your taxable income while preparing you for retirement. When you choose this plan, you can invest your cash in mutual funds, stocks, or bonds. You also have the control on how you want to allocate your assets. The cash in your account grows tax deferred until you withdraw it.

At that point, however, the funds you withdraw will serve as regular income and will get taxed at your normal rate. You will also trigger a 10% penalty if you request distributions prior to age 59 ½. It’s always best to consult an expert for Great Falls financial planning to make informed decisions.

Roth (401)k: After-Tax Investment

Roth (401)k plans function much like traditional plans, but they differ on when investors need to make contributions. Unlike the traditional (401)k, you contribute funds after your income gets taxed. This means you won’t have to reduce your taxable income when investing with a Roth plan.

The most significant part, however, is you’ll enjoy non-taxable withdrawals after age 59 ½ if you’ve been enrolled in a plan for at least five years. Opening a Roth 401(k) plan is ideal if you think you’ll be in a higher tax bracket by the time you retire since your withdrawals won’t get taxed. It’s also a great idea to think about this if you’re young. Your earnings still have plenty of years to continue growing tax-free, so seek the help of our specialists for tax planning in Washington, DC or Northern Virginia…now.

It pays to educate yourself about various plan offerings such as these. Otherwise, you might miss out on their potentially valuable benefits. To learn more about 401(k) accounts, you can call AOG Wealth Management at (866) 993-0203 or complete our free consultation form. We’ll be happy to assist you.

Category: Investment Management