Timothy Sumer

EXAMPLE: CONSIDERS GOOD RATE OF RETURN For a high-income earner, a traditional could be the better option. In the United States, a 401(k) plan is an employer-sponsored defined-contribution pension account defined in subsection 401(k) of the Internal Revenue Code.[1] Employee funding comes directly off their paycheck and may be matched by the employer. There are two types: traditional and Roth 401(k). For Roth accounts, contributions and withdrawals have no impact on income tax. For traditional accounts, contributions may be deducted from taxable income, and withdrawals are added to taxable income. There are limits to contributions,[2] rules governing withdrawals, and possible penalties. The benefit of the Roth account is from tax-free capital gains. The net benefit of the traditional account is the sum of a possible bonus (or penalty) from withdrawals at tax rates lower (or higher) than at contribution, and the impact on qualification for other income-tested programs from