{"id":432,"date":"2023-01-19T21:36:05","date_gmt":"2023-01-19T22:36:05","guid":{"rendered":"http:\/\/marshalllodge.co.uk\/?p=432"},"modified":"2023-11-23T15:19:39","modified_gmt":"2023-11-23T15:19:39","slug":"pre-tax-vs-roth-after-tax-401k-contributions","status":"publish","type":"post","link":"http:\/\/marshalllodge.co.uk\/index.php\/2023\/01\/19\/pre-tax-vs-roth-after-tax-401k-contributions\/","title":{"rendered":"Pre-tax vs Roth (After-Tax) 401(k) Contributions"},"content":{"rendered":"

A major decision in retirement planning<\/a> is whether to make pre-tax or Roth (after-tax) 401k contributions. Pre-tax contributions go into your retirement account<\/a> with money that has not been taxed, and then taxes will be paid when the funds are withdrawn in retirement.<\/p>\n

With Roth contributions, taxes will be taken from the money prior to placing it in the plan, but it can then be withdrawn tax-free once you retire. <\/p>\n

Making the correct decision depends on a few factors, such as your current and expected future income levels, how much of an earning potential you have left before you retire, and also how close you are to retirement age. <\/p>\n

When considering all aspects of these two types of contributions it could result in potentially thousands more dollars during retirement, so it\u2019s important to take the time to research each option thoroughly.<\/p>\n

Pre-tax and Roth (after-tax) contributions are two different types of contributions that can be made to retirement accounts such as 401(k)s<\/a> and IRAs<\/a>.<\/p>\n

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Pre-tax Contributions:<\/h4>\n
Pre-tax contributions are made with money that has not yet been taxed. The money is taken out of your paycheck before taxes are calculated and is then deposited into your retirement account. <\/p>\n

The advantage of pre-tax contributions is that they lower your taxable income in the current year, which can reduce the amount of taxes you owe.<\/p><\/div>\n<\/div>\n

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Roth (after-tax) Contributions:<\/h4>\n
Roth contributions are made with money that has already been taxed. The money is taken out of your paycheck after taxes are calculated and is then deposited into your retirement account. <\/p>\n

The advantage of Roth contributions is that the money in the account grows tax-free, and withdrawals in retirement are also tax-free.<\/p><\/div>\n<\/div>\n

Both pre-tax and Roth contributions have their advantages and disadvantages, and the choice between them will depend on your personal financial situation and goals. <\/p>\n

Factors to consider include your current tax bracket, your expected tax bracket in retirement, and whether you prefer to pay taxes now or later. <\/p>\n

401(k) and Roth 401(k) Contribution Limits<\/strong><\/h3>\n
\n\n\n\n\n\n\n\n\n\n
YEAR<\/strong><\/th>\n401(k) MAXIMUM<\/strong><\/th>\nCATCH-UP CONTRIBUTION<\/strong><\/th>\nMAXIMUM ALLOCATION<\/strong><\/th>\n<\/tr>\n<\/thead>\n
2023<\/td>\n$22,500<\/td>\n$7,500<\/td>\n$66,000<\/td>\n<\/tr>\n
2022<\/td>\n$20,500<\/td>\n$6,500<\/td>\n$61,000<\/td>\n<\/tr>\n
2021<\/td>\n$19,500<\/td>\n$6,500<\/td>\n$58,000<\/td>\n<\/tr>\n
2020<\/td>\n$19,500<\/td>\n$6,500<\/td>\n$57,000<\/td>\n<\/tr>\n
2019<\/td>\n$19,000<\/td>\n$6,000<\/td>\n$56,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\n
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Table of Contents<\/h3>\n<\/div>\n
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