Saving for retirement is a great way to gain financial strength. Many taxpayers opt for a 401(k) savings plan. There are two different types of 401(k) plans, and you should be aware of what makes them different from each other.

Traditional 401(k)

This type of plan is sponsored by your employer and allows you to add part of your paycheck to a retirement investment account. Any money contributed to the savings isn’t taxed until it is withdrawn from the account, ideally during your retirement phase. In most cases, employers will match your contributions. If you withdraw funds before you reach age 59 ½ (or 55 if you have left the job), you’re usually subjected to penalties. Some plans have certain amounts subject to pre-determined limits ($17,500 in 2014) that can be withdrawn without penalty. Maximum contribution limits also apply, and fluctuate depending on inflation. These limitations also apply to plans used by non-profits and public schools- 403(b) and 457 local government plans.

Roth 401(k)

If your employer offers it, a Roth 401(k) gives you the option to contribute money from your salary after tax. In doing so, the money is not taxed upon withdrawal during retirement. Employers matched contributions go into a traditional 401(k) plan, and any distributions received therein will be taxed. Roth 401(k)s are subject to the same limitations as traditional 401(k)s. You are able to split your contributions between the two different types of plans, however, your total contribution can’t exceed the maximum limit.