Traditional 401K or Roth 401K?
For American workers with access to these benefits, which 401K do you choose and why? I understand the differences between them, but curious how other people made the decision on which to choose.
Note that the more of each flavor you have, the more it pushes you to the other flavor. If you have a large regular 401k balance, your taxable income will be high in retirement, so you may not want to defer more taxes until retirement age. And if your Roth balance is large, you have access to a lot of untaxable income, so you may want to defer more taxes until retirement.
Otoh, if you expect to have taxable invesments, and retire early, living off of taxable, you may have the opportunity to convert to Roth at low rates.
It kind of depends on how much you want to optimize.
Also, some companies offer an after tax 401k, some with automatic conversion to Roth. Then you can take the limit of tax deferred contributions and contribute a significant amount to (effectively) Roth and have both.
Oh and one more thing. The contribution limit is the same number of dollars, but Roth dollars are more valuable than traditional dollars, so Roth contributions gets you more money into tax priviledged accounts (of course, Roth contributions are more expensive, too).
If retiring early, it may be better to do traditional contributions while working and then do Roth conversions at lower tax rates during early retirement.
Bogleheads maintains a list [0] of many retirement calculators that can use the additional specifics of your situation to give a higher quality answer. It will generally require you to give it a plan for the rest of your life, so you'll want to try a number of scenarios to see if/how the plan changes.
Bogleheads also has an active forum that variations of this question have been asked many times. If you want to see what situations others have asked about in the Boglehead forums and the recommendations they got you can search with [1].
[0] https://www.bogleheads.org/wiki/Retirement_calculators_and_s...
[1] search for: traditional or roth 401k contributions site:bogleheads.org
Roth: invest post-tax money. Withdraws in retirement are tax free. You're betting that your taxes will be higher in the future.
Traditional: invest pre-tax money. Withdraws are considered income and are taxed. You're betting that your taxes will be lower in the future.
Employers usually match contributions to traditional accounts (never seen any match Roth). I've never seen any analysis if matches would offset any tax disadvantages.
Employer matches must go to tax deferred, but IIRC, my last employer would match either Roth or traditional. They also had an after tax 401k with available automatic conversion to Roth (sometimes called a mega backdoor), which let me get a pretty good amount of Roth contributions.