Compare the projected future value of your savings based on your current contributions and estimated tax rates.
Projected Future Values
Enter your details above to see the comparison.
Understanding Roth 401(k) vs. Traditional 401(k)
Choosing between a Roth 401(k) and a Traditional 401(k) is a significant financial decision that hinges on your expectations about your future income tax rates. Both plans offer tax-advantaged growth for your retirement savings, but they differ fundamentally in when you receive the tax benefit.
Traditional 401(k):
Tax Deduction Now: Contributions are made pre-tax, meaning they reduce your taxable income in the current year.
Taxable Withdrawals Later: When you withdraw money in retirement, both your contributions and the earnings are taxed as ordinary income.
Best For: Individuals who expect to be in a lower tax bracket during retirement than they are currently, or who want the immediate tax benefit to lower their current tax bill.
Roth 401(k):
After-Tax Contributions: Contributions are made with money you've already paid taxes on. There is no upfront tax deduction.
Tax-Free Withdrawals Later: Qualified withdrawals in retirement (typically after age 59½ and having held the account for 5 years) are completely tax-free, including all earnings.
Best For: Individuals who expect to be in a higher tax bracket during retirement than they are currently, or who value the certainty of tax-free income in retirement.
How the Calculator Works
This calculator helps illustrate the potential impact of your tax situation on the future value of your retirement savings. It uses the future value of an ordinary annuity formula, adjusted for the tax implications at different stages.
Calculations:
The core of the calculation involves projecting the future value of your annual contributions compounded over time. We then factor in the tax treatment for each type of 401(k).
1. Future Value of Contributions (Pre-Tax):
The formula for the future value (FV) of an ordinary annuity is:
FV = P * [((1 + r)^n - 1) / r]
Where:
P = Annual Contribution Amount
r = Annual Investment Growth Rate (as a decimal)
n = Number of Years Until Withdrawal
2. Traditional 401(k) Projected Value (Pre-Tax Growth):
The calculator first calculates the gross future value using the formula above. This represents the total amount in the account before any taxes are considered on withdrawals.
The effective value in retirement, considering taxes at withdrawal, is then calculated by applying the expected withdrawal tax rate:
Note: The calculator simplifies by assuming the current tax rate affects the initial contribution benefit for comparison purposes, and the withdrawal tax rate affects the final outcome.
3. Roth 401(k) Projected Value (After-Tax Growth):
For the Roth 401(k), the contributions are made after taxes. So, the amount actually invested is less than the nominal contribution if you were to take a direct distribution.
The amount *effectively* contributed to a Roth 401(k) each year, considering your current tax bracket, is:
Roth_Contribution_Effective = P * (1 - Current_Tax_Rate)
This effective amount then grows tax-free. The future value calculation uses this effective contribution amount:
In this scenario, even though the Traditional 401(k) has a higher gross value before taxes, the Roth 401(k) provides a greater net amount after taxes are considered, because the withdrawal tax rate is higher than the current tax rate. The immediate tax savings from the Traditional 401(k) are also a factor to consider.
Disclaimer: This calculator provides an estimate based on the inputs provided and assumed growth rates and tax scenarios. It does not account for all potential variables, such as employer matching contributions (which are typically pre-tax regardless of Roth/Traditional choice), changes in tax laws, fees, inflation, or specific withdrawal strategies. Consult with a qualified financial advisor for personalized advice.
function calculate401kComparison() {
var annualContribution = parseFloat(document.getElementById("annualContribution").value);
var yearsUntilWithdrawal = parseFloat(document.getElementById("yearsUntilWithdrawal").value);
var currentTaxRate = parseFloat(document.getElementById("currentTaxRate").value) / 100; // Convert percentage to decimal
var expectedWithdrawalTaxRate = parseFloat(document.getElementById("expectedWithdrawalTaxRate").value) / 100; // Convert percentage to decimal
var annualGrowthRate = parseFloat(document.getElementById("annualInvestmentGrowthRate").value) / 100; // Convert percentage to decimal
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = "; // Clear previous results
// Input validation
if (isNaN(annualContribution) || isNaN(yearsUntilWithdrawal) || isNaN(currentTaxRate) || isNaN(expectedWithdrawalTaxRate) || isNaN(annualGrowthRate) ||
annualContribution <= 0 || yearsUntilWithdrawal <= 0 || annualGrowthRate <= 0) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields.";
return;
}
if (currentTaxRate 1 || expectedWithdrawalTaxRate 1) {
resultDiv.innerHTML = "Tax rates must be between 0% and 100%.";
return;
}
// Calculate Future Value of Annuity (FV)
// FV = P * [((1 + r)^n – 1) / r]
var futureValueGross = 0;
if (annualGrowthRate > 0) {
futureValueGross = annualContribution * (Math.pow(1 + annualGrowthRate, yearsUntilWithdrawal) – 1) / annualGrowthRate;
} else { // Handle 0% growth rate
futureValueGross = annualContribution * yearsUntilWithdrawal;
}
// Traditional 401(k) – Taxed at Withdrawal
// The initial benefit is reducing current taxable income. We'll show the net future value after withdrawal taxes.
var traditionalFutureValueAfterTax = futureValueGross * (1 – expectedWithdrawalTaxRate);
var immediateTaxSavingsTraditional = annualContribution * currentTaxRate;
// Roth 401(k) – Tax-Free Withdrawals
// Contributions are made after-tax.
var effectiveRothContribution = annualContribution * (1 – currentTaxRate);
var rothFutureValue = 0;
if (annualGrowthRate > 0) {
rothFutureValue = effectiveRothContribution * (Math.pow(1 + annualGrowthRate, yearsUntilWithdrawal) – 1) / annualGrowthRate;
} else { // Handle 0% growth rate
rothFutureValue = effectiveRothContribution * yearsUntilWithdrawal;
}
var outputHTML = `
${rothFutureValue > traditionalFutureValueAfterTax ? 'Roth 401(k) is projected to yield a higher after-tax value.' : 'Traditional 401(k) is projected to yield a higher after-tax value (considering immediate savings).'}
`;
resultDiv.innerHTML = outputHTML;
}