To make an informed decision between traditional and Roth deferrals, you need to consider your current tax situation and your expected retirement situation. In general, you should choose traditional deferrals if you expect your tax rate to decrease during retirement, and Roth deferrals if you expect it to increase. With a traditional 401 (k) plan, you pay income taxes on any contribution or profit you withdraw. With a Roth 401 (k), income taxes only apply to your earnings, since you've already prepaid the money you put into the account.
The 10% early withdrawal penalty from the IRS still applies to both plans. If you expect to be in a lower tax bracket when you retire, a traditional 401 (k) may make more sense than a Roth account. However, if you're now in a lower tax bracket and think you'll be in a higher tax bracket when you retire, a Roth 401 (k) might be a better option. A Roth 401 (k) is a relatively new addition and allows for a different type of tax relief.
With a Roth 401 (k) plan, you'll make after-tax cash contributions, so you won't get a tax break today. In exchange, any money you withdraw during retirement will be tax-free. Meanwhile, converting a traditional 401 (k) into a traditional IRA doesn't help you avoid RMDs, and you can't convert that account into a Roth IRA without incurring high taxes. Both accounts require account owners to begin accepting distributions at age 72, but money from a Roth 401 (k) can easily be transferred to a Roth IRA, allowing you to avoid those distributions and even transfer that money to the heirs.