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5 Differences Between Roth and Traditional 401(k)s


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Employer Contributions
Your company must put its contribution in the traditional 401(k) box. Jamie Grill/Getty Images
Your company must put its contribution in the traditional 401(k) box. Jamie Grill/Getty Images

Although 401(k) plans are popular today, there will always be employees who never get around to signing up for one, even if they intend to do so, or who simply don't care about planning ahead. Of course, this can be quite perilous down the road if they end up with little or no retirement savings at age 62. Some companies choose to nudge their employees toward wise retirement planning by automatically enrolling them in a 401(k) plan. If employees don't want to join, they must opt out. When employers have such mandatory enrollment, by law it must be into a traditional 401(k) plan -- so that's where employees' contributions will go, as well as contributions by employers [source: Forbes].

If an employer offers both a traditional 401(k) plan and a Roth 401(k), it's up to the employee to ask to open a Roth 401(k). And even then, by law, any employer contributions will still go into the company's traditional 401(k). That might not be so bad, though. If employees contribute funds to a Roth 401(k) and their employers contribute to a traditional 401(k), that diversifies the employees' savings [source: Forbes].

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