Two employees can contribute the same amount to a 401(k) and face very different tax consequences. Traditional 401(k) contributions generally defer income taxes until withdrawal, while Roth contributions are made after tax and may permit tax-free qualified distributions. Employer matches and withdrawal rules also matter.
The relevant rules can depend on age, income, filing status and the type of account or benefit involved. Decisions that look attractive in one tax year may create costs in another. Tax treatment should be weighed alongside employer matching and the timing of future withdrawals.
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