You want to identify if you have a traditional plan (before tax) or a Roth plan (after tax). You should consider a Roth plan, if you are not making that much money and you expect to pay more taxes later — $70,000 is a rough number to use when deciding. Under $70,000, go with the Roth; over $70,000, go with the traditional. This is not a hard science; make the call after plenty of consideration, when taking into account your own particular situation and the federal and state income taxes you pay. Take your time, and educate yourself about your options before you act.
This issue gets a bit more complicated when you live in a no income tax state. You might want to increase that number to $80,000 when determining whether to go Roth or Traditional. As for the married folks, $140,000 in total family income could be used as a threshold. Under that amount go with the Roth and over that number, go with the Traditional. What if you live in a no state income tax state? You might want to increase that amount to $160,000 or something close to that amount. If you are close, you could also do some Roth and some Traditional. Make the call!
Here is one approach for those of you who want to retire early (before 59.5). No matter what your income, put your contributions in via Roth. Be sure to open a Roth IRA as soon as possible outside your work. Load up for years inside that Roth 401(k). When you are ready to leave the world of work, transfer all of that Roth 401(k) to your Roth IRA, which has been opened for over 5 years. Move your matching money to a Traditional IRA. You can now treat all of that Roth 401(k) as contributions. That is a BIG deal. Keep reading as I describe an example.
Let's you have put in $150,000 in contributions over time into your Roth IRA and that produced earnings of $100,000. Next, you transfer the Roth 401(k) money and its earnings over to your Roth IRA. In this example, that amount is $600,000 (you were able to put in more into the 401(k) than the IRA. That $600,000 added to the $150,000 could be used by you immediately tax free and penalty free for you to pay the bills. The $100,000 in earnings from the Roth IRA will need to be delayed until age 59.5 to avoid a penalty on early withdrawal. The rest is for you right now!