June 28, 2019

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How do I choose between a traditional and a Roth 401(k)/IRA?

  • Contributions to a traditional 401(k) are made pre-taxed and allow you to save faster, but you will have to pay taxes when you withdraw money at retirement.

  • Contributions to a Roth 401(k) are made after taxes and your income in retirement is withdrawn tax-free. IRS restrictions may apply.


How do I determine how much to contribute to my 401(k)?

  • Try to contribute at least as much as your employer offers to match. This is in essence guaranteed return on your investment. Once you hit that mark, you can determine how much more to contribute based on your current situation. Most advisors would recommend savings at least 10% (including match) for retirement.
  • Click here to access tools that can help you determine how much to contribute to your retirement.

How can I ensure that I am contributing more each year?

  • Set it and forget it! By setting up your account to auto-escalate, for example by 1% each year, you could increase your savings with little effort. Most retirement financial management providers offer this type of service.

The Takeaway

  • Whether using a 401(k)/403(b) offered by your employer or opening an IRA on your own, it is important that you are contributing at least a portion of your income to retirement. Start by just getting in the habit - your future self will thank you!


Want to find out more? Check out our financial tools and resources.

These facts and opinions are provided by the Cape Cod Five Trust and Asset Management Department. The information presented has been compiled from sources believed to be reliable and accurate, but we do not warrant its accuracy or completeness and will not be liable for any loss or damage caused by reliance thereon. Investments are NOT A DEPOSIT, NOT FDIC INSURED, NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY, NOT GUARANTEED BY THE FINANCIAL INSTITUTION AND MAY GO DOWN IN VALUE.

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