In this Answers Answers segment of Motley Fool Answers podcast, Alison Southwick and Robert Brokamp dip into some arcane details about the Roth 401(k). Unlike a classic 401(k), the contributions you make to a Roth version are after-tax money, and you get no immediate break on what you owe the IRS. But your investments grow tax-free, and you won't pay taxes on your qualifying withdrawals in retirement.

Simple, right? Not entirely. Because your employer's matching contributions work like the account was a classic 401(k). So can you finesse that to your benefit?

A full transcript follows the video.

This video was recorded on Oct. 31, 2017.

Alison Southwick: It's time for Answers Answers and it comes from Eric today. "In January my employer will begin offering a Roth 401(k). After looking at my circumstances, it makes sense for me to switch to that option, but from what I've read, my employer match gets held in a separate account because it is made with pre-tax dollars. Can I direct which investments get my contribution and which get my employer's contributions?"

Robert Brokamp: Well, Eric, you are absolutely right. If you participate in the Roth 401(k), what that means is your contributions go in. You don't get a tax deduction, but the money grows tax-free as long as you follow the rules. However, the match goes into essentially a traditional account, and that is where the money goes in. You don't get the deduction. The company gets the deduction. The money grows tax-deferred, but when you take out that match money, it gets taxed. However, this is really just an accounting issue. You don't have two separate accounts, and because of that you don't get to say, "I'm going to invest my Roth contributions in this fund and then I want the employer match to be invested in this fund." You just choose the funds and the money is apportioned ratably, as they might say.

However, Eric, I think you're on the right track, because it does make sense to think of your Roth assets and your traditional assets differently in terms of the investments. The Roth is going to be the tax-free account. That's the one you want to be bigger, so if you're choosing among different assets like cash, bonds, and stocks [and you have to decide which account goes into which], you choose the Roth for the things that you expect to grow more because that's the account you want to be bigger.

So I like the way you're thinking. People should definitely think differently in terms of how they invest their Roth accounts and their traditional accounts. Unfortunately, though, in the Roth 401(k), you can't do it.

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