@tlminjar wrote:
I definitely had no intentions of pulling prior to the baby being born, I just want a full understanding of what I needed when the time came. I think I am still confused as to why I am taxed twice on my 401k. No employer contributions are made to it, it’s all money from my pay check. I need a better understanding of why I am taxed twice.
With a Roth 401k, you contribute after-tax dollars, but the investment growth is tax-free. If you wait until retirement to withdraw funds, that growth is still tax-free, but if you withdraw the growth (increase) before age 59-1/2, that increase is taxable.
It's similar to how, if you invested after-tax money with a stock broker, you would only pay tax on the gains/growth (interest, dividends, and increased stock value). The special thing about a Roth 401k is that withdrawals are completely tax-free if you wait for retirement—but the growth is still taxable if you withdraw before retirement.
A Roth 401k has different rules on taxing withdrawals before age 59-1/2 than a Roth IRA, it's how the laws were written. With a Roth 401k, your withdrawal before retirement contain a proportional amount of contributions and gains, so you pay income tax on the portion that is gains.
