Question

Contributions to a traditional 401(k) are made with (1)-tax dollars, while contributions to a Roth 401(k) are made with (2)-tax dollars. Qualified distributions from a Roth 401(k) are (3) (taxable/nontaxable). (Enter only one word per blank.)

a) Pre
b) Post
c) No
d) Deductible

Answer 1

Contributions to a traditional 401(k) and Roth 401(k) differ in when you pay taxes, with the former using pre-tax dollars and the latter post-tax dollars, leading to nontaxable distributions from the Roth 401(k) if conditions are met.

Step-by-step explanation:

Contributions to a traditional 401(k) are made with pre-tax dollars, while contributions to a Roth 401(k) are made with post-tax dollars. Qualified distributions from a Roth 401(k) are nontaxable. These retirement savings vehicles are designed to encourage saving for retirement by providing tax advantages. The choice between a traditional 401(k) and a Roth 401(k) is primarily based on when you prefer to pay taxes on your retirement funds.