What is a Traditional 401(k)?

Traditional 401(k)

• Contributions are made before taxes are paid, also known as pre-tax contributions or tax-deferred.
• When a worker receives their W-2, their earned income will be lower because contributions for a traditional 401(k) are deducted from their pay.
• This decreases the worker's taxable income now and they will pay taxes when they withdraw the 401( k ) money.
• If the worker's contributions are the same, their take home pay will be slightly higher when compared to a Roth.

How Money is Taxed

See the example below of how and when money is taxed.