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Which is better for me - a Roth or a regular 401(k)?

If your firm lets you choose between a traditional 401(k) and a Roth 401(k), try to gauge whether the upfront tax break on the traditional plan is likely to outweigh the back-end benefit of the Roth.

For example, if you're on the young side or aren't a high earner, opting for a Roth can be a smart move. Yes, you give up the initial tax break on your contributions - but if you're not in a high tax bracket, the tax break wouldn't have been that huge anyway. The Roth option will let you avoid taxes when you're retired, which is a great thing.

By contrast, if you're in a high tax bracket today, a traditional 401(k)'s immediate tax break may be more appealing than the Roth's deferred gratification - especially if you expect to be in a lower tax bracket when you begin to make withdrawals from your account.

It's always a good idea to make sure your retirement money is "tax-diversified," meaning split up among accounts that are tax-deferred until retirement, and accounts that are already settled up with Uncle Sam. One way to do that is to use your 401(k) plan as a supplement to your IRA, if you have one. If you have a Roth IRA, you might want to opt for the traditional 401(k) at work. Likewise, a Roth 401(k) might be a good choice for you if you already have a traditional IRA. If your employer offers both types of 401(k)s, you can divide your savings among them.

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