What is the primary advantage of a Roth 401(k) compared to a traditional 401(k)?

The primary advantage of a Roth 401(k) is that it offers tax-free withdrawals in retirement. This feature is particularly beneficial for individuals who expect to be in a higher tax bracket when they retire compared to their current tax bracket. Contributions to a Roth 401(k) are made with after-tax dollars, meaning taxes are paid on the money before it is contributed. As a result, when you reach retirement age and begin to withdraw funds from the account, those withdrawals, including both contributions and earnings, can be taken out tax-free, provided certain conditions are met. This tax treatment can lead to significant savings on taxes during retirement, allowing for greater financial flexibility and potentially enhancing overall retirement income.

The other choices do not highlight the unique advantage of the Roth 401(k). For instance, immediate tax deductions on contributions are a characteristic of traditional 401(k)s rather than Roth versions. Additionally, while both types have the same contribution limits determined by the IRS, the benefits of employer matching contributions are typically part of both plans. However, it's the tax-free withdrawals that truly distinguish the Roth 401(k) as an advantageous option for many savers planning for retirement.