Tax Deductions of Contributions

• Contributions to a traditional 401(k) plan can be deducted from your taxes in the year you make the contribution. There is no deduction for a Roth 401(k) contribution.
  
  

Tax Treatment of Withdrawals

• Money withdrawn from traditional 401(k) plans must be reported as taxable income when you retire. Money withdrawn from a Roth 401(k) plan is tax-free.
  
  

Matching Contributions

• If your employer matches all or a portion of your contributions to a traditional 401(k), you can add that matching amount to the same account. If you make your contribution to a Roth 401(k), you must set up a traditional 401(k) plan to hold the matching contributions because they cannot be put into a Roth 401(k).
  
  

Qualified Withdrawals

• For traditional 401(k) plans, a qualified withdrawal is one that takes place after you turn 59 1/2. For a Roth 401(k), you must be over age 59 1/2 and have had the account open for at least five years.
  
  

IRA Rollovers

• If you rollover your traditional 401(k) plan, you must first roll it into a traditional IRA and then, if you desire, convert it to a Roth IRA and make a tax payment on the conversion. Your Roth 401(k) can be rolled over directly into a Roth IRA with no tax payment.
  
  

Misconceptions

• Even though Roth IRAs are not subject to required minimum distributions, Roth 401(k) plans must take required minimum distributions starting at age 70 1/2, just like traditional 401(k) plans.