401k's are pretax (mostly), but no, contributions to a Roth IRA are not. This money has already been taxed, but current tax law allows for qualified tax-free withdrawals. Whereas withdrawals from a 401k will be taxed at one's ordinary tax rate. Let me add that at your age and income, a Roth is apetizing. Although you pay tax before your contributions ($3000 a year for next year), you are likely to pay higher taxes if you wait to start a Roth when your income is higher. If you are just starting out, however, it may be a goal to maximize your usable income and reduce taxes in which case a pre-tax 401K or traditional IRA is advantageous.A few other things:1) Are you planning for yourself or a family? In the case of the former you may be considering buying a first home. In the case of the latter, you may also need to consider saving for college. With a Roth, after 5 years you can withdraw original contributions without penalty if needed (although I am not endorsing the practice). With a 401K you can take out loans but it costs you.2) Have you fully explored Merryl Lynch? Employers are notorious for not educating their employees well on how to use a 401K, but the the host financial vendor has a wealth of information and tools on-line that you can use to research your fund options and devise a retirement investment strategy.3) Take control over your financial destiny. Answer a few questions for yourself:- What is your retirement goal? This is often a hard question for young people to answer but it is important to establish a goal and stick to it.- What is your risk aversion? Young people tend to be more risk averse, especially after the last couple of years, because they have a hard time envisioning how $100 a month can grow into hundreds of thousands. Generally you want to take more risks when you have a long ways to go, and fewer risks when you are approaching retirement.- What is your asset allocation? There are a lot of strategies out there, but a common one is to invest heavily in stocks when you have 20+ years before retirement and move towards more conservative investments as you seek to preserve you nest egg. Sub-allocation by small, medium and large cap, value and growth, as well as international should be part of your strategy.Hope some of this helps and meets Fool approval.
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