Introducing roth 401(k)

As I mentioned last journal, the 401(k) is one of the best investing method. Basically, there are two different types of 401(k), the one is traditional 401(k), and the other one is Roth 401(k).This is a similar concept as IRAs. People get tax deduction on the contribution, if they put money into a traditional 401(k). For example, people whose tax brackets are in borderline between 25% and 30%, and they put money into the traditional 401(k), then the amounts they put into the traditional 401(k) are deducted from their tax. Thus, they could be in lower tax brackets. However, they should pay taxes when they withdraw from the traditional 401(k) because those taxes are deferred. Even though government cannot collect taxes at the moment, government would collect more taxes by compounding interest when investors withdraw from their accounts.People who invest into Roth 401(k), they put money which, already paid taxes, into the Roth 401(k). In addition, when they withdraw from the Roth 401(k) account after 59.5 years old. Some people take the Roth 401(k) because they think future tax rate is higher than present, so they want to keep the lower tax rates.If I have to choose one of those, I would choose traditional 401(k). The reason is I may get lower tax bracket. Even though the amounts earned from that account is taxable after withdrawing the net income still larger than Roth 401(k) because more money works for me for a long time with compounding interest.
However, people who prefer a safety plan just like hedging, and then they probably take Roth 401(k) because the amount earned from the Roth 401(k) will be tax-free. Thus, they do not have to worry about future tax rates. In conclusion, a traditional and Roth 401(k) have advantages and disadvantages, so people should consider whether they get tax-free or tax-deduction.

http://www.investopedia.com/articles/retirement/05/introRoth401k.asp