Selecting the right retirement plan to secure your future can often seem like a difficult decision. A Roth vs. traditional 401k calculator can help you determine which retirement plan is best for you depending on your financial needs and circumstances.
Below, we discuss the differences between these two plans and provide information about our Roth vs. Traditional 401k calculator so that you can make the best decision.
A Roth vs. Traditional 401k Calculator helps you see what your contributions' value will be after taxes and at retirement.
Sometimes you just need some concrete numbers to determine whether or not a Roth or traditional 401(k) is ideal for you.
Calculating potential retirement plan earnings can be your best way of assessing minimum contributions, tax benefits, and plan differences.
This calculator requires you to input several key factors that determine earnings.
Along with your current age and expected age of retirement, you'll need financial info, like your annual contribution.
401(k) plans give workers an opportunity to plan for their retirement, provided they meet the eligibility requirements. There are two types of 401(k) plans available to employed citizens: traditional and Roth 401(k) plans.
It can be difficult navigating the distinctions between these two plans, without forecasting each plan's value.
For example, let's say that you are currently 30 years old with an annual yearly income of $45,000.
If you set aside $3,000 per year for your 401(k) at a tax rate of 25%, you can expect to retire at 65 with a traditional 401(k) value of $539,090. A Roth 401(k), on the other hand, will have a retirement value of $404,320.
This calculator is especially valuable for individuals who are already contributing to a 401(k) plan. You'll be able to get a clear idea of your future income. We recommend fiddling around with a few input values to get a solid grasp of what savings you'll have at retirement.
Check out the analysis to get a closer look at these calculations. If you aren't sure what your retirement needs will be, use our retirement calculator to find out.
Both Roth and Traditional 401(k) plans help employed individuals set aside money for future retirement funds. The essential difference between Roth and traditional 401(k) contributions lies in their taxability.
All contributions you make to a traditional plan are tax-deductible on state and federal tax returns.
Roth contributions are not tax-deductible.
When you withdraw your traditional 401(k) savings, this withdrawal is taxable.
Earnings and withdrawals from a Roth 401(k) are tax-free.
If you have a traditional or a Roth 401(k) plan, you will have to start taking money out of your retirement savings when you are 70.5 years of age. These are called required minimum distributions (RMDs).
However, if you convert your Roth 401(k) plan into a Roth IRA plan, this stipulation goes away.
The answer to this question will depend on your income levels, needs for retirement, and relationship to taxes.
In general, a Roth 401(k) is ideal for people who want the freedom of withdrawing their contributions without taxes or penalties when they are eligible to do so.
While individuals with a Roth 401(k) won't get tax deductions on their contributions, they can withdraw from their accounts tax-free. This is particulariy beneficial if you think you will be in a higher tax bracket in retirement.
A traditional 401(k) is for those who like the idea of getting tax deductions for every contribution year. These deductions depend on income levels and employer 401(k) plans and can be a valuable reward for people planning for their retirement.
You may also be able to chat with your employer about which option is best for you, given the trajectory of your career. Traditional deposits make the most sense at the peak of your earnings and career.
Both 401(k) plans have yearly contribution limits. You can't contribute more than $19,000 to your traditional or Roth 401(k) account every year. This is an increase from prior years' caps.
The only exception is for account holders 50 and older, who can contribute an additional $6,000 per year (unchanged from 2018).
There is no minimum amount that you have to contribute to a 401(k), either Roth or traditional, every year. However, it is important to contribute an amount that makes sense for your retirement plans and needs.
If you have the income to set aside heftier contributions now, this can maximize your earnings and make for a comfortable retirement.
Any individual with a 401(k) plan, either Roth or traditional, can access their savings without a penalty once they are 59.5 years old.
If you need to access savings before this time you will have to pay a ten percent withdrawal fee.
Unfortunately, waiting until age 59.5 can be tough for some people when it comes to accessing savings. Sometimes unexpected hardship or medical needs surface, forcing individuals to withdraw from their 401(k)s early.