I agree with other comments! Given that we know what taxes are today and that we don't know what they will be 20 years from now, I believe it is better to pay the tax today than pay a higher tax tomorrow.  For one thing, taxes are currently at historicall lows and are more likely to go up than down.  Plus, if I have done a good job at saving for my retirement, I will be a multi-millionaire when it comes time to pull out the money.  In other words, I will be one of those "rich" people the Democrats want to tax to oblivion.  To pay 15% tax now or 35% tax later?  You decide.

let's boil this down to just two things:  deferral and taxes dollars paid now or later.  

first, deferral.  a tax dollar paid later is always better than a tax dollar paid now.  so chalk that one up for the traditional ira in all cases.

second, tax dollars actually paid.  contrary to what the idiot said in the article, it is not a choice of marginal tax rates now vs effective tax rates later.  that is really fuzzy math.  it is marginal tax rates now vs marginal tax rates later.  this one is simple but also includes looking into your crystal ball. if you expect your marginal tax rate for your 401k deductions to be greater than your marginal tax rates for your 401k withdrawls than the traditional 401k is a better bet. simple as that.

OK This guy has not invested in ROTH IRA and has never learned the rules. For ONE, I was told by AG Edwards investment broker that $150,000 was the maximum you can earn to maintain a ROTH. TWO, you do NOT get charged any taxes on a ROTH withdrawal after age 59 1/2. Like a savings account withdrawal. Roth IRA's are a great investment for anyones future except for this idiot who wrote this blog!!!!

This article is neither accurate nor wise.  The withdrawals from a traditional 401k are taxed at your marginal not effective rates.  The article also never mentioned that age is the most determining factor.  The younger you are the more beneficial a Roth is to a traditional 401k or IRA since the growth is far greater on a young person than an older and not taxed at all ever.  People should focus on SAVE, SAVE, SAVE WHETHER A ROTH OR TRADITIONAL AND FORGET THIS WRITER- HE NEITHER UNDERSTANDS TAXES NOR HUMAN NATURE NOR FINANCIAL PRINCIPLES.  tHE DOUGH ROLLER IS FULL OF DOUGH.

The author’s analysis is WAY too biased against the Roth 401(k).  A perfect segment of our society that SHOULD consider investing in the Roth are those in the early part of their career.  They are probably in the lowest tax brackets of their life, including retirement; AND these particular contributions will multiply themselves more than funds contributed later in life, making a higher proportion of their investment earnings tax-free when withdrawn during retirement.

Ideally, one will want to have two pools of funds during retirement – taxable funds from traditional 401(k)s and tax-free funds from Roth 401(k)s.  During each year of retirement, the retiree will pull FIRST from the taxable funds as they work their way up through the lower tax brackets, maybe capping out at the 15% or 25% tax bracket.  Then, and especially in years when they need higher income, they would pull from the tax-free funds, but will avoid the higher 33% and 35% brackets.  As the person goes through retirement with some years of high income, let’s say for travel; and some years with low income, lets say to stay at home with grandkids; they would keep their taxes low throughout retirement, not allowing the timing of their income to put them in the higher tax brackets.  This will lower incomes tax paid during the person's lifetime.

The best time to invest for that tax-free pool of income is in the early years of their career, by investing in their Roth 401(k).

This article is extremely misleading.  Even if a person in the 25% tax bracket while working ends up in a lower bracket while retired Roth is still better.  My $10,000 Roth investment could easily grow to $40,000 by the time I retire.  I'd rather pay 25% tax now on $10,000 when I can afford it than 15% on $40,000 when I'm retired.  Remember, the growth in a Roth is NEVER taxed.  Therefore, the overall amount of money going to the government will usually be less with a Roth than a 401(k).

Tax rates could be 55%-80% in the future, easy.  Something to consider.  A hybrid approach is the best way to go.  Max out the company match in your regular 401k, then go to a Roth.  If your company doesn't have a Roth 401k, then open one on Sharebuilder.com.

Max out your Roth before you make too much money. Let's say you put 30,000 in a Roth after 6 years of working and don't put another penny in. Your estimated return, compounded at 10%, after year 40, is well over a million dollars. So you have more than a million dollars in tax free money. VS a traditional IRA where you would have to pay taxes on that million dollars. Although you don't pay taxes when you put the money in with a traditional IRA, I don't think anyone could argue that they would trade the taxes saved on a million vs. 30,000. There is a reason why wealthy people are not able to contribute to a Roth, it gives the little guys an edge. Articles like this really need to be careful because inexperienced investors might actually read them.

Future After-Tax Value of a Traditional 401(k) = Principal * (1+interest rate)^n periods * (1-tax rate).

Future After-Tax Value of a Roth 401(k) = Principal * (1-tax rate) * (1+interest rate)^n periods.

They are mathematically equivalent IF the tax rate is equivalent.  Now, the Roth 401(k) is advantageous because it allows you to invest more tax advantaged dollars. In other words, the initial Principal is higher.  $15,000 in a traditional 401(k) is equal to $15,000/(1-tax rate) in a Roth 401(k).  For example, if your marginal tax rate is 0.28, then you can effectively shelter $20,833.33 in pre-tax money in a Roth 401(k)!  An appropriate economic comparison between maxing out the two flavors of the 401(k) should include what you do with the $5,833.33 (pre-tax) in your pocket.

Its all a matter of opinion and guess.  The first thing is to contribute to a ROTH or Traditional 401(k).  Like Nike says, Just Do It.  Debate the finer points of which is better later.  

Fully fund it and split the difference.  Half contribute in the pretax portion of your 401(k) and put the other half into the ROTH after tax component of your employers 401(k).  That way you can have some flexibility and tax control options when you retire.  Regardless of what the tax structure will be when you retire you should be investing as much as you can into your retirement plan.  www.eventiumfs.com