Understanding Your 401(k): Do You Have Two Accounts?
A lot of people think they need separate 401(k) accounts for Roth and pretax contributions. But here’s the truth: your 401(k) is a single account that can handle both.
Here’s how it works. Your 401(k) gives you the option to decide how your contributions are taxed. If you choose **pretax contributions**, you reduce your taxable income today, but you’ll pay taxes when you withdraw the money in retirement. On the other hand, **Roth contributions** are made with after-tax dollars, so you don’t get a tax break now, but your withdrawals (including any earnings) are tax-free in retirement, as long as you follow the rules. Even though the tax treatments are different, both types of contributions live in the same 401(k).
So, why isn’t it two accounts? The 401(k) tracks Roth and pretax contributions separately within the same plan, along with any earnings. This keeps things simple while giving you the flexibility to use both options. When it’s time to take money out, the plan applies the right tax rules to each portion.
Having everything in one place makes it easier to manage your investments and diversify your tax strategy. If you’re unsure how to make the most of your 401(k), talk to your plan provider or financial advisor.
Did You Know?
Your employer sponsors this financial wellness benefit from Francis LLC. The benefit connects you with down-to-earth financial planners who educate and advise on any money matters…without the sales pitch. We are exclusively engaged by employers like yours and have no investment products to sell, so you can feel confident that you will always receive objective advice.
Your financial planner will help you set priorities and achieve your money goals, without judgment or financial jargon. Know that all discussions are kept strictly confidential. This service is offered as an employee benefit with no per-session co-pays, so you can meet with a financial planner as often as you wish. Services are paid by your retirement plan or your employer.
Connecting with a financial planner is easy! Here’s how:
- Visit FrancisWay.com > Services > Participant Portal
- Call (866) 232-6457
Download the free mobile app (Search for Francis LLC)
