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When it comes to saving for his own retirement, certified public accountant Barry Picker takes advantage of a tax strategy ignored by most Americans. Each year he stashes some of his retirement savings in a Roth 401(k), rather than putting all his savings into a traditional 401(k).
While that means he misses out on the immediate tax break that comes from contributing to a traditional 401(k), Picker has something else in mind — a less taxing retirement. By paying taxes now, he won’t have to worry about paying taxes when he withdraws money from his Roth 401(k) later. Money withdrawn from a traditional 401(k), of course, will be taxed as ordinary income.
Social Security and Medicare
While Picker is thinking about keeping his taxes down in retirement, a Roth 401(k) also provides more flexibility when it comes to managing income and some less obvious payoffs as well. A traditional 401(k) requires you to begin taking distributions in the year your turn age 70½ (or if later, the year you retire) — and then you pay taxes on that income. With the Roth 401(k), there is no required minimum distribution (if you roll the Roth 401(k) into a Roth IRA). That means you can choose to leave your funds invested and reduce your gross income.
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Font: http://www.bloomberg.com/news/2012-06-04/the-retirement-savings-move-tax-pros-love.html
Rafaela Azevedo 