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Pay Tax Now To Lock In Tax-Free Growth
- Contribute to a Roth 401(k) to pay tax now and enjoy tax-free distributions later.
- Roth earnings grow tax-free, so decades of compounding can produce large tax savings.
40-Year $1,000/Month Growth Example
- Laura gives a 40-year example of $1,000 monthly Roth contributions turning into over $2.64 million at 7% annual returns.
- She highlights that about $2.16 million of that would be tax-free earnings.
Traditional Accounts Only Defer, Not Eliminate, Taxes
- Traditional 401(k) contributions give current-year tax deductions but distributions are taxable in retirement.
- You effectively only own the after-tax portion of a traditional account long-term.