Here's why Suze Orman says it's better to invest your retirement savings in a Roth 401K if you can. (via CNBCMakeIt)
A 401 is one of the best ways to save for retirement, but there's more than one type of employer-sponsored retirement account and knowing the differences can give you more options in the long run.
One of the biggest perks of contributing to a traditional 401 is that doing so can save you money on taxes. Any money you put in a traditional 401 goes straight from your paycheck before taxes are applied, so it reduces your taxable income. But financial expert Suze Orman says there's a better way to invest for your retirement. Instead of investing in a traditional 401, Orman recommends investing in a Roth 401. Now you've probably heard of the individual retirement account option, the Roth IRA, but there's now a 401 version as well that functions in roughly the same way.
With a traditional 401, you don't pay taxes on the income you're funneling into your investments. But when you retire, you pay taxes when you withdraw money from that account. With a Roth IRA, you contribute the money after-taxes, so while you don't get the immediate tax break, you don't have to pay any taxes when you retire.
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