Total Roth 401k Balance at Retirement (Tax-Free):$0
Taxes Paid on Traditional 401k Withdrawals:$0
After-Tax Value of Traditional 401k at Retirement:$0
Effective Tax Rate Paid on Traditional 401k Funds:0%
Comparison: Traditional 401k is projected to be more beneficial by $0
Understanding Traditional 401k vs. Roth 401k
Choosing between a Traditional 401k and a Roth 401k is a significant decision that impacts your retirement savings. Both are employer-sponsored retirement savings plans that offer tax advantages, but the nature of these advantages differs fundamentally. This calculator helps you compare the potential outcomes based on your current and expected future financial situations.
Traditional 401k
How it works: Contributions to a Traditional 401k are made with pre-tax dollars. This means your taxable income is reduced in the year you contribute, providing an immediate tax break. However, your withdrawals in retirement will be taxed as ordinary income.
Key Features:
Tax Deduction Now: Contributions lower your current taxable income.
Tax-Deferred Growth: Your investments grow without being taxed annually.
Taxable Withdrawals in Retirement: You pay income tax on all withdrawals during retirement.
Who might benefit: Individuals who expect to be in a lower tax bracket in retirement than they are currently, or those who want the immediate tax benefit to increase their current take-home pay.
Roth 401k
How it works: Contributions to a Roth 401k are made with after-tax dollars. You don't get an immediate tax deduction. However, your investments grow tax-free, and qualified withdrawals in retirement are also completely tax-free.
Key Features:
No Upfront Tax Deduction: Contributions do not reduce your current taxable income.
Tax-Free Growth: Investments grow without annual taxation.
Tax-Free Withdrawals in Retirement: Qualified distributions are not taxed.
Who might benefit: Individuals who expect to be in a higher tax bracket in retirement than they are currently, or those who prioritize tax-free income in retirement.
The Math Behind the Calculator
This calculator estimates the future value of your contributions for both plans and then compares the after-tax value at retirement.
Annual Contribution: Calculated as Annual Income * (Contribution Percentage / 100).
Future Value (FV) of Investments: We use the compound interest formula:
FV = P * (1 + r)^n
Where:
P = The total annual contribution (for simplicity, this calculator assumes the contribution is made annually and compounds). In a more complex model, we'd consider the compounding of each year's contribution. For this simplified model, we're treating the annual contribution as the principal that grows over time, though a more accurate representation would be a series of contributions. A more accurate FV calculation for periodic contributions is:
FV = P * [((1 + r)^n - 1) / r]
Where P is the annual contribution. We will use this more accurate formula.
r = The expected annual rate of return (as a decimal, e.g., 7% = 0.07).
n = The number of years until retirement.
Traditional 401k: The calculated Future Value is the estimated balance. To find the after-tax value, we estimate the total taxes paid during retirement withdrawals. This simplified model assumes you withdraw the entire balance over a period, and the taxes are calculated based on the estimated retirement tax rate applied to the entire lump sum withdrawal, which is a simplification. A more precise calculation would involve an annual withdrawal schedule. For simplicity, we are assuming the entire balance is withdrawn in a single year for tax calculation purposes, and the tax paid is Total Balance * (Expected Retirement Tax Rate / 100).
Roth 401k: The calculated Future Value is the estimated tax-free balance at retirement.
Comparison: The difference between the Roth 401k balance and the after-tax balance of the Traditional 401k is calculated. A positive difference favoring Roth means the tax-free withdrawals are projected to be more valuable.
Effective Tax Rate on Traditional: This is calculated as (Taxes Paid on Traditional / Total Traditional Balance) * 100.
Disclaimer: This calculator provides an estimate for illustrative purposes only. It does not account for employer matches, investment fees, inflation, changes in tax laws, or varying income/tax rates throughout your career and retirement. Consult with a qualified financial advisor for personalized advice.
function calculate401kComparison() {
// Get input values
var annualIncome = parseFloat(document.getElementById("annualIncome").value);
var contributionPercentage = parseFloat(document.getElementById("contributionPercentage").value);
var yearsUntilRetirement = parseInt(document.getElementById("yearsUntilRetirement").value);
var expectedAnnualReturn = parseFloat(document.getElementById("expectedAnnualReturn").value) / 100; // Convert percentage to decimal
var currentTaxRate = parseFloat(document.getElementById("currentTaxRate").value) / 100; // Convert percentage to decimal
var expectedRetirementTaxRate = parseFloat(document.getElementById("expectedRetirementTaxRate").value) / 100; // Convert percentage to decimal
var estimatedAnnualExpenses = parseFloat(document.getElementById("estimatedAnnualExpenses").value); // This is for context, not direct calculation in this model
// Basic validation
if (isNaN(annualIncome) || isNaN(contributionPercentage) || isNaN(yearsUntilRetirement) || isNaN(expectedAnnualReturn) || isNaN(currentTaxRate) || isNaN(expectedRetirementTaxRate) || isNaN(estimatedAnnualExpenses) ||
annualIncome <= 0 || contributionPercentage 100 || yearsUntilRetirement <= 0 || expectedAnnualReturn < 0 || currentTaxRate < 0 || expectedRetirementTaxRate 0) {
effectiveTraditionalTaxRate = (traditional401kTaxes / traditional401kBalance) * 100;
effectiveTraditionalTaxRate = Math.round(effectiveTraditionalTaxRate * 100) / 100;
}
// Display results
document.getElementById("annualContributionDisplay").textContent = "$" + annualContribution.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
document.getElementById("traditional401kBalance").textContent = "$" + traditional401kBalance.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
document.getElementById("roth401kBalance").textContent = "$" + roth401kBalance.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
document.getElementById("traditional401kTaxes").textContent = "$" + traditional401kTaxes.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
document.getElementById("traditional401kAfterTax").textContent = "$" + traditional401kAfterTax.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
document.getElementById("effectiveTraditionalTaxRate").textContent = effectiveTraditionalTaxRate.toFixed(2) + "%";
var comparisonMessage = "";
if (comparisonValue > 0) {
comparisonMessage = "Roth 401k is projected to be more beneficial by $" + comparisonValue.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
document.getElementById("comparison-result").style.backgroundColor = "#28a745"; // Green for Roth advantage
} else if (comparisonValue < 0) {
comparisonMessage = "Traditional 401k is projected to be more beneficial by $" + Math.abs(comparisonValue).toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
document.getElementById("comparison-result").style.backgroundColor = "#007bff"; // Blue for Traditional advantage
} else {
comparisonMessage = "Both plans are projected to yield similar after-tax results.";
document.getElementById("comparison-result").style.backgroundColor = "#6c757d"; // Gray for neutral
}
document.getElementById("comparison-result").textContent = "Comparison: " + comparisonMessage;
}