What is the difference between Traditional 401(k) contributions and Roth 401(k) contributions?

In the most basic sense, the difference is that Roth 401(k)s are comprised of after-tax dollars while Traditional 401(k)s are comprised of before-tax dollars. Traditional 401(k) contributions are withheld tax-free, whereas Roth contributions will be counted as taxable income for the year during which the money is deferred. The benefit of Roth contributions comes into play when the 401(k) contributions and income are liquidated.

Roth 401(k) contributions and earnings are exempt from federal taxes as long as the money is distributed at least five years after the participant’s first Roth contribution is made, and occurs on or after the date that the participant turns 59 ½, following the participant’s death, or is initiated by the participant due to disability.