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Glossary

Roth vs traditional

Pay the tax now, or pay it in retirement.

A traditional 401(k) or IRA takes contributions before tax, so the deduction lands today and withdrawals in retirement are taxed as income.

A Roth is funded with money already taxed, and qualified withdrawals — contributions and all the growth — come out tax free.

The rough rule: Roth wins if your tax rate in retirement is likely to be higher than today's, traditional wins if it will be lower. Early in a career, Roth usually looks better.

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