Dave Ramsey On Roth vs. Traditional 401(k)

Core Concept - The article discusses the advantages of Roth 401(k) plans over traditional 401(k) plans, emphasizing the tax benefits of Roth accounts when it comes to retirement savings [2][3]. Group 1: Comparison of 401(k) and Roth 401(k) - Traditional 401(k) contributions are made pre-tax, reducing taxable income at the time of contribution, but taxes are owed on the entire amount upon withdrawal in retirement [6][7]. - In contrast, Roth 401(k) contributions are made after taxes, meaning that while the initial contributions are taxed, withdrawals during retirement are tax-free [6][7]. - An example illustrates that investing $200 a month from age 25 to 65 in a Roth 401(k) could yield $2.5 million, with only $96,000 being the principal amount contributed, which would be tax-free upon withdrawal [2][3]. Group 2: Historical Context - 401(k) plans were created under the Revenue Act of 1978 and gained popularity in the 1980s, while Roth 401(k)s were introduced in 2001 and became available to employers in 2006 [5]. - The traditional 401(k) has been in existence for nearly 50 years, whereas Roth 401(k)s have been available for nearly 20 years, although many workers remain unaware of the latter [5].