Many people have been chosing to invest their money into 401K because of the benefits of income tax cuts, as it is excluded from taxable income. Starting January 1, 2006, employers will have an option of providing a new kind of 401k plan to its employees, that lets you give up the same immediate income tax in return for tax free withdrawals of investment and deposit income, after the age of 59 1/2 and during retirenment.

So the question is which 401k is better, the old or the new? It all depends on whether you wish to pay taxes now or later. If your tax-bracket is the same, then both types of accounts can result in same outcome. With the current (old) 401k plan you can save on your taxes now and use that money for tax saving for recent discretionary spending but with the all new Roth 401k, you basically have the freedom in taking tax-free money after you decide to retire.

So what will I pick? I still haven’t chosen a 401k plan and am still considering whether or not I should. If anyone would like to comment on this subject and help me figure out what I should do, comments are welcome.

This entry was posted on Sunday, August 28th, 2005 at 10:44 pm and is filed under Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.