Compare the potential long-term benefits of contributing to a Roth 401(k) versus a Traditional 401(k) based on your current and expected future tax brackets.
Comparison Summary
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Understanding Roth vs. Traditional 401(k)
Choosing between a Roth 401(k) and a Traditional 401(k) is a significant decision with long-term financial implications. The core difference lies in when you pay taxes.
Traditional 401(k): Tax-Deferred Growth
Contributions: Made with pre-tax dollars. This means your taxable income is reduced in the year you contribute.
Growth: Investments grow tax-deferred. You don't pay taxes on the earnings each year.
Withdrawals in Retirement: Both your contributions and earnings are taxed as ordinary income in retirement.
Best For: Individuals who believe they are in a higher tax bracket now than they will be in retirement, or those who want an immediate tax break.
Roth 401(k): Tax-Free Growth and Withdrawals
Contributions: Made with after-tax dollars. You pay taxes on your income in the current year.
Growth: Investments grow tax-free.
Withdrawals in Retirement: Qualified withdrawals of both contributions and earnings are completely tax-free.
Best For: Individuals who believe they will be in a higher tax bracket in retirement than they are currently, or those who prefer tax certainty in retirement.
How the Calculator Works
This calculator estimates the potential future value of your 401(k) contributions under both scenarios, considering your current income, contribution rate, current and expected future tax brackets, assumed investment growth rate, and the number of years until retirement.
It calculates:
After-Tax Contribution Amount: The actual amount available for investment after taxes are considered for each plan type.
Future Value Calculation: It projects the future value of these contributions using the compound annual growth rate formula: FV = P * (1 + r)^n, where FV is Future Value, P is the periodic contribution (adjusted for taxes), r is the growth rate, and n is the number of periods (years).
Estimated Taxes in Retirement: For the Traditional 401(k), it estimates the taxes you would owe upon withdrawal based on your expected retirement tax bracket.
Net Value Comparison: It compares the estimated after-tax value of your Roth 401(k) at retirement to the estimated after-tax value of your Traditional 401(k) at retirement.
The result indicates which option is projected to leave you with more spendable money in retirement, based on the assumptions you've provided.
Disclaimer: This calculator provides an estimate for illustrative purposes only. It does not constitute financial advice. Actual investment returns and tax laws may vary significantly. Consult with a qualified financial advisor and tax professional before making any investment decisions.
function calculate401kComparison() {
var currentIncome = parseFloat(document.getElementById("currentIncome").value);
var contributionPercentage = parseFloat(document.getElementById("contributionPercentage").value);
var currentTaxBracket = parseFloat(document.getElementById("currentTaxBracket").value) / 100;
var expectedTaxBracket = parseFloat(document.getElementById("expectedTaxBracket").value) / 100;
var investmentGrowthRate = parseFloat(document.getElementById("investmentGrowthRate").value) / 100;
var yearsToRetirement = parseFloat(document.getElementById("yearsToRetirement").value);
var resultDisplay = document.getElementById("resultValue");
var explanationDisplay = document.getElementById("resultExplanation");
// Basic validation for numeric inputs
if (isNaN(currentIncome) || isNaN(contributionPercentage) || isNaN(currentTaxBracket) || isNaN(expectedTaxBracket) || isNaN(investmentGrowthRate) || isNaN(yearsToRetirement) ||
currentIncome < 0 || contributionPercentage < 0 || currentTaxBracket < 0 || expectedTaxBracket < 0 || investmentGrowthRate < 0 || yearsToRetirement 100) {
resultDisplay.innerText = "Invalid Input";
explanationDisplay.innerText = "Contribution percentage cannot exceed 100%.";
return;
}
// Calculate annual contribution amount
var annualContributionAmount = currentIncome * (contributionPercentage / 100);
// — Traditional 401(k) Calculation —
// Contribution is pre-tax, so it's the full amount available to invest initially
var traditionalContribution = annualContributionAmount;
var traditionalFutureValue = traditionalContribution * Math.pow(1 + investmentGrowthRate, yearsToRetirement);
var traditionalTaxesInRetirement = traditionalFutureValue * expectedTaxBracket;
var traditionalNetValue = traditionalFutureValue – traditionalTaxesInRetirement;
// — Roth 401(k) Calculation —
// Contribution is after-tax
var rothContributionPreTax = annualContributionAmount;
var rothTaxesPaidNow = rothContributionPreTax * currentTaxBracket;
var rothContribution = rothContributionPreTax – rothTaxesPaidNow; // This is what's actually invested
var rothFutureValue = rothContribution * Math.pow(1 + investmentGrowthRate, yearsToRetirement);
// Qualified withdrawals are tax-free
var rothNetValue = rothFutureValue;
// — Comparison —
var difference = rothNetValue – traditionalNetValue;
var outputMessage = "";
if (difference > 0) {
outputMessage = "Roth 401(k) is projected to be more beneficial by approximately $" + Math.round(difference).toLocaleString() + " in retirement.";
} else if (difference < 0) {
outputMessage = "Traditional 401(k) is projected to be more beneficial by approximately $" + Math.round(Math.abs(difference)).toLocaleString() + " in retirement.";
} else {
outputMessage = "Both Roth and Traditional 401(k) are projected to yield similar results in retirement based on these assumptions.";
}
resultDisplay.innerText = outputMessage;
explanationDisplay.innerText = "Assumptions: Annual contribution of $" + Math.round(annualContributionAmount).toLocaleString() +
", current tax rate " + (currentTaxBracket * 100).toFixed(1) + "%, expected retirement tax rate " + (expectedTaxBracket * 100).toFixed(1) + "%," +
" " + yearsToRetirement + " years until retirement, with a " + (investmentGrowthRate * 100).toFixed(1) + "% annual growth rate.";
}