Roth vs Traditional 401(k) Retirement Plan Calculator

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Roth 401(k) vs. Traditional 401(k) Plan Calculator

When you’re looking at ways to invest your hard-earned money and save for retirement, it can be difficult to decide which investments are right for you. People become particularly confused when looking at the differences between a Roth 401(k) and a Traditional 401(k) retirement savings plan and understanding why one might be better in particular situations. Let’s start by understanding the difference between the two plans and then go over why each one might be a better choice for you.

Roth 401(k) vs. Traditional 401(k) - What’s the Difference?

The main difference between a Roth 401(k) vs. Traditional 401(k) plan is when you pay the taxes on your money. With a Roth 401(k), your contribution to your retirement account is made after your pay has already been taxed, which means that down the road when you retire, your (qualified) withdrawals are tax-free. With a Traditional 401(k), the money you contribute has not yet been taxed, so it continues to grow and accrue interest without being taxed. However, once you retire and begin to withdraw your earnings, those withdrawals are taxed like any other income.

How to Choose Between a Roth and Traditional 401(k)

So, which is better for you? Consider when you’d prefer to pay your taxes and what your tax rate is likely to be at that time. Do you anticipate being in a higher tax bracket when you retire because you’re in the early stages of your career now? If so, the Roth 401(k) may be a better choice for you, as your taxes may come out at a lower rate. You can also withdraw a large sum from a Roth 401(k) after you’re retired without the tax bill you’d acquire with a traditional 401(k). However, if you’re more likely to retire in a lower income bracket, a traditional 401(k) may be ideal since you’ll avoid paying taxes until your tax bracket is lower.

Roth 401(k) vs. Traditional 401(k) Calculator Tool

Mission Federal Credit Union offers a Roth vs. Traditional 401(k) Plan Calculator to help you compare your potential returns from contributions to a Roth vs. Traditional 401(k) account. Enter your current age, retirement age and life expectancy, followed by your annual income, wage growth percentage and 401(k) contribution percentage. After that, enter investment information about the rate of return you expect to achieve on your investments both pre- and post-retirement. Finally, enter your current tax rate and your anticipated tax rate at retirement. Our Roth 401(k) vs. Traditional 401(k) Calculator will compare two Roth 401(k) plans (with one contribution amount that compensates for taxes and one that does not) with a traditional 401(k) plan. Use our retirement calculators to explore which retirement account will provide you with the returns you’ll need for a comfortable retirement, and then visit our IRA Center to discuss your options.

Consult a tax specialist to determine which IRA is best for you.

Interactive calculators are made available as self-help tools, and we cannot and do not guarantee their accuracy or applicability to your circumstances. All examples are hypothetical and are for illustrative purposes only. Calculators are not intended to provide investment advice, and we encourage you to seek personalized advice from qualified professionals regarding all your personal financial issues.

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