Trying to decide between Roth and a pre-tax contribution?
With a pre-tax election, you make contributions from your pay check BEFORE any taxes are taken out, so you get a tax break up front, helping to lower your current income tax bill and putting more money into your investment account to earn dividends.
Your money – both contributions and earnings – grow tax-deferred through investment gains over time until you withdraw them. At that time, withdrawals are considered to be ordinary income and taxed at the current rate when withdrawn.
With a Roth contribution, it’s basically the reverse. You make your contributions with after-tax dollars, meaning there’s no upfront tax deduction. However, withdrawals of both contributions and investment earnings are tax-free at age 59 1/2, as long as you’ve held the account for at least five years.
So it all comes down to deciding when it’s better for you to pay the taxes – now or later.