Deciding between 401(k) retirement options makes my head hurt! There are a lot of subtle differences between Roth 401(k)s and Traditional 401(k)s, so today we’ll help you decide which one is right for you!

According to a recent survey by Willis Tower Watson, a global advisory firm, almost 70% of mid-size and large companies now offer a Roth 401(k) option within their 401(k) plans. If you are a part of the majority of people whose memories of their intro-level financial classes lay dormant for years, covered in cobwebs, you may need a quick refresher. More importantly, you now can ask yourself the following: If most employers give the option, should I go with a Roth 401(k), or should I stick with a Traditional 401(k)?

Both the Roth and the Traditional 401(k) plans allow earnings in an account to grow tax free. Contributions to a traditional 401(k) are pre-taxed, meaning that all contributions reduce your tax liability today. Conversely, contributions to a Roth 401(k) are taxed just like other income.  If this was a tennis match – advantage traditional 401(k). But not so fast! Years from now, when you want to take money out in retirement, the advantage goes to the Roth 401(k) because any withdrawals are not taxed. With a traditional 401(k), withdrawals are taxed at ordinary tax rates.

You can scour the Internet, read all of the articles you want, and ask all of the experts, yet they all say the same thing: “Will you be in a higher or lower tax bracket in retirement relative to where you are now?” 1 says Bethlehem, Pa., financial planner and president of Educated Wealth Strategies Eric Nichols.

Gee, what a build-up! Who really knows what tax bracket they’ll be in years down the road? Is there something else I can do? You can look at current trends for guidance. “Among 401(k) plans run by Fidelity that offer Roth accounts, 12.9% of millennials use Roth accounts. . . In comparison, only 9.1% of Gen Xers use Roth accounts. And merely 7.4% of baby boomers do.”  2 You can see the same pattern with plans offered by Wells Fargo, “Younger workers are more likely to choose Roth accounts so they can pay tax on the money they put into the account when their tax rates are lower.” 2 In summary, younger workers prefer the Roth option.

While the data shows you the trend, why does this have to be an “either / or” solution – all Roth versus all traditional? Most plans allow you to invest in both type of plans. Many experts, like financial planner and president of Educated Wealth Strategies Eric Nichols suggest hedging your bets and placing some of your retirement savings in each account. Regardless of the option you choose, saving for retirement is always a smart decision.

  1. What’s Better—a Traditional 401(k) or a Roth 401(k)?:
  2. Roth 401(k) Vs. Traditional: How To Choose Which Is Best For You: