First, you may conclude that the best plan for you depends on what your tax rate will be during retirement. The problem is, of course, that we can’t know for sure what the tax situation will be many years from now. Since we don’t know, why not invest some of your money in both plans? By doing so, you hedge against the possibility that you’ll put all your money in one plan that turns out to be the second best choice.
Second, you may conclude that the Roth is best, but can’t afford to lose the current tax savings that a traditional 401(k) offers. If that’s the case, you can start off investing some small portion in the Roth plan, and as your income grows (and your need for the tax deduction diminishes), you can gradually switch your contributions from the traditional plan to a Roth plan.
It’s this second option that I’m seriously considering when my employer begins offering the Roth 401(k). And since my company matches dollar for dollar up to 6%, putting all my money in a Roth 401(k) would result in the first option. Why? Because matching contributions are placed in a traditional 401(k), even if the employee contributions go to a Roth 401(k).
Finally, if you’re funding a 401(k), you may also want to consider signing up for blooom. It’s the only dedicated robo-advisor for 401(k) accounts. blooom gives you a free analysis of your retirement plan and for $10 a month, blooom will manage your 401(k). This includes finding and minimizing hidden fees, regularly adjusting your portfolio, expert financial help from blooom advisors and suspicious activity alerts to protect your account. blooom can work with any employer sponsored retirement plan and is currently the only robo-advisor available that specifically manages 401(k) accounts. You can learn more about blooom here.