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Retirement

401(k)s and Taxes: It's Complicated (But We'll Make It Simple)

(Nothing says "adulting" like voluntarily giving up money now for the promise of more money later.)…

Written or Reviewed by a licensed professional · Reviewed · How we write and fact-check · Published · 1 min read

A dense, chaotic tangle of black and grey cables hanging from a ceiling.
Your 401(k)'s tax rules, after Congress finished 'simplifying' them.Photo: “Cable salad” by Achim Hering, via Wikimedia Commons, CC BY 3.0
The short answer

(Nothing says "adulting" like voluntarily giving up money now for the promise of more money later.)…

Slide titled “401(k)s and Taxes: It’s Complicated (But We’ll Make It Simple),” with an illustration of a stressed person surrounded by tax paperwork

(Nothing says "adulting" like voluntarily giving up money now for the promise of more money later.)

Slide titled “The ‘Now or Later’ Game” comparing Tax Pain Now (pay taxes upfront, tax-free growth and withdrawals later) with Tax Pain Later (tax-free contributions now, taxes on withdrawals in retirement), beside a winding mountain roadSlide titled “Traditional 401(k): The Procrastinator’s Paradise” listing pre-tax contributions, tax-free growth, and taxes owed on withdrawals in retirement, beside an illustration of a person lounging on a beach chairSlide titled “Roth 401(k): The ‘Get It Over With’ Approach” listing upfront taxes, tax-free growth, and lifetime tax freedom, beside an illustration of tax forms stamped PAIDSlide titled “The Numbers Game” showing a $23,000 maximum contribution and $7,500 catch-up contribution for age 50+ for 2024, citing IRS Publication 590-ASlide titled “The Plot Twists Nobody Tells You About: Early Withdrawal Drama” noting a 10% IRS penalty on top of regular taxes, beside an illustration of a man putting cash into a piggy bankSlide titled “Required Minimum Distributions (RMDs)” noting withdrawals start at age 73, beside an illustration of two older men arguing over a restaurant checkSlide titled “The Expert Take” with three short points: Reality Show vs. Reality, Vanguard Study, and Found MoneySlide titled “Get Expert Help” with a short note that the article is for informational purposes only, beside an illustration of a person napping on a sofa

Editor's note: This article is general education, not personal financial, tax or legal advice. Product features, fees and availability vary by company and state. Talk to a licensed professional about your situation.

Every article is written or reviewed by a licensed professional. How we write and fact-check

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