401(k) to Roth IRA Conversion Calculator
Estimated Impact
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Enter your details to see the estimated financial outcome.
Understanding 401(k) to Roth IRA Conversions
Converting a Traditional 401(k) to a Roth IRA involves moving pre-tax funds from your 401(k) into a Roth IRA. The primary difference is when you pay taxes. With a Traditional 401(k), you receive a tax deduction now, and your contributions and earnings grow tax-deferred. You pay income tax on withdrawals in retirement. With a Roth IRA, you contribute after-tax dollars, and qualified withdrawals in retirement are tax-free.
This calculator helps you estimate the potential financial impact of converting some or all of your Traditional 401(k) balance to a Roth IRA. It considers the immediate tax cost of the conversion versus the potential tax savings in retirement.
How the Calculation Works:
The calculator estimates the future value of your investments under two scenarios:
- Scenario 1: No Conversion (Traditional 401(k)): Your current balance grows at the expected rate until retirement. Upon withdrawal, taxes will be paid based on your future tax rate.
- Scenario 2: Conversion to Roth IRA: You pay income tax now on the converted amount (based on your current tax rate). The remaining funds then grow at the expected rate until retirement. Qualified withdrawals in retirement are tax-free.
The calculator compares the net, after-tax value of your investments at retirement in both scenarios.
Inputs Explained:
- Current Traditional 401(k) Balance: The total amount currently held in your Traditional 401(k) account.
- Your Current Marginal Income Tax Rate (%): The tax bracket you are currently in. This is the rate at which the converted amount will be taxed today.
- Estimated Future Marginal Income Tax Rate (%): The tax bracket you anticipate being in during retirement. This is the rate at which you would have paid taxes on withdrawals from your Traditional 401(k) if no conversion occurred.
- Expected Annual Investment Growth Rate (%): The average annual rate of return you expect your investments to generate.
- Years Until Retirement: The number of years remaining until you plan to withdraw funds from your retirement accounts.
Key Considerations:
- Taxation Event: Converting to a Roth IRA is a taxable event. You must pay income tax on the amount converted in the year of conversion.
- Tax Rate Comparison: The decision to convert often hinges on whether you believe your current tax rate is lower than your expected tax rate in retirement. If your current rate is lower, converting might be advantageous. If your future rate is expected to be lower, holding onto the pre-tax status might be better.
- Market Volatility: The "Expected Annual Investment Growth Rate" is an estimate. Actual returns can vary significantly.
- Contribution Limits: Conversions do not count against your annual Roth IRA contribution limits, but the amount converted must be paid as tax from outside funds or by liquidating other assets.
- Employer Plans: Note that not all 401(k) plans allow for in-service rollovers or direct conversions to a Roth IRA. Some may require you to roll over to an IRA first. Always check your plan's rules.
- Required Minimum Distributions (RMDs): Traditional 401(k)s (and Traditional IRAs) are subject to RMDs starting at age 73 (as of SECURE 2.0 Act). Roth IRAs do not have RMDs for the original owner.
Disclaimer: This calculator provides an estimate for informational purposes only and does not constitute financial advice. Consult with a qualified financial advisor before making any decisions about your retirement accounts.
Traditional 401(k) Scenario:
Estimated Value at Retirement (Before Tax): ${formattedFutureTraditional}
Estimated Value at Retirement (After Tax): ${formattedAfterTaxTraditional}
Roth IRA Conversion Scenario:
Immediate Tax Cost of Conversion (at ${conversionTaxRatePercent}%): ${formattedTaxOnConversion}
Estimated Value at Retirement (After Tax): ${formattedFutureRoth}
Estimated Net Difference at Retirement (Roth vs. Traditional):
${formattedNetBenefitRoth}
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