Roth contributions are a popular choice for retirement savings, and many large companies now offer a Roth 401(k) option in addition to a traditional 401(k). With a traditional 401(k), your pretax contributions grow tax-deferred until you withdraw the money at age 59½. But you'll pay taxes when you take the money out in retirement.
With a Roth 401(k), like a Roth IRA, your after-tax contributions grow tax-deferred and then withdrawals after age 59½ are generally tax-free as long as you follow IRS guidelines. But unlike Roth IRAs, there are no income limits to contributing to a Roth 401(k). Once you leave your employer, you can generally roll over a Roth 401(k) into a Roth IRA with no income requirements and no required minimum distributions at age 70½.
In 2015, you can contribute a maximum of $18,000 to a traditional 401(k), Roth 401(k) or combination of the two. Workers who are 50 or older can put away an extra $6,000, or a total of $24,000 into these accounts. You can contribute up to $5,500 to a Roth IRA or $6,500 if you're 50 or older. However, Roth IRA contributions have income requirements. You have to make less than $131,000 if you're single to contribute. Married couples filing jointly have to make less than $193,000.
"Once you've contributed the maximum to a Roth 401(k), then if you're eligible, do a Roth IRA," Ritter said. "If your company doesn't offer a Roth 401(k), contribute enough to your traditional 401(k) to get the company match. Then use a Roth IRA."