If I am young, is it preferrable to contribute after-tax to my 401k?

Question

At the company where I work, I have three options for contributing to my 401(k).

1. Before Tax
2. Roth
3. After Tax

I'm not sure if I totally understand what each of these means. This is what I am thinking happens. The money that I contribute Before Tax is eventually taxed when I withdraw from my 401(K) when I retire. The money that I contribute to Roth and After Tax is taxed up front, and when I retire, it is not taxed.

If this understanding is incorrect, then let me know.

Otherwise, here is my question. If I am less than two years into my working career, is it smarter to contribute to Roth/After Tax (as opposed to Before Tax) because I make a comparatively smaller amount than when I retire?

I have asked others about this, but I don't think I am understanding the particulars of this, and it would really help if someone explained this to me clearly.

On a somewhat-related note, my company matches my contributions to a point, and that is done Pre-Tax. If I contribute 6% or more of my salary, they will contribute equivalently up to 4% of my salary.

Answer 1

Young vs old doesn't really make a difference. What's in play in the Roth/After Tax vs Traditional/Pretax decision is your current marginal tax bracket versus your probable taxation in retirement.

Since your company matches something on the pretax account it makes sense to max out the pretax contribution match amount before considering roth contributions. If the match is something like 50% of your contribution up to 3% of your salary, that's an instant 50% return on your contribution and you can't really beat that.