Roth 401k Vs 401k Calculator

When planning for retirement, choosing between a Roth 401(k) and a Traditional 401(k) can be a major financial decision. Both accounts are employer-sponsored retirement savings vehicles, but they have key differences in how contributions and withdrawals are taxed.

How to Use the Roth 401(k) vs. 401(k) Calculator

Using the calculator is simple and requires just a few details about your financial and tax situation:

Step-by-Step:

1. Enter Your Annual Salary – Input your gross income before taxes.
2. Choose Contribution Amount – Decide what percentage or fixed amount you’ll contribute annually.
3. Input Expected Rate of Return (%) – This is your projected annual growth (e.g., 7%).
4. Enter Current Age and Retirement Age – This helps calculate how many years you will be investing.
5. Input Your Current Tax Rate and Expected Tax Rate in Retirement – These determine how your contributions and withdrawals will be taxed.

Once you click calculate, the tool will compare your Roth 401(k) and Traditional 401(k) values after taxes, showing which option may yield a higher retirement fund.

Key Formula Used in the Calculator

Below are the plain text formulas used to determine the final value of both account types.

1. Traditional 401(k) Final Value:

iniCopyEditFV_401k = Contribution * [((1 + r)^n - 1) / r] AfterTax_401k = FV_401k * (1 - RetirementTaxRate) 

Where:

• FV_401k = Future value of traditional 401(k)
• r = Annual rate of return
• n = Years to retirement
• RetirementTaxRate = Tax rate at time of withdrawal

2. Roth 401(k) Final Value:

iniCopyEditFV_Roth = Contribution * (1 - CurrentTaxRate) * [((1 + r)^n - 1) / r] 

Since Roth contributions are after-tax, no tax is due upon withdrawal.

Example Comparison

Let’s consider a user with the following details:

• Annual Salary: $80,000
• Contribution: 10% ($8,000/year)
• Rate of Return: 7% annually
• Current Age: 30
• Retirement Age: 65
• Current Tax Rate: 24%
• Retirement Tax Rate: 22%

Traditional 401(k):

• Pre-tax contributions: $8,000/year
• Future Value (before tax): ~$848,000
• After-tax at retirement: $848,000 × (1 - 0.22) = $661,440

Roth 401(k):

• Post-tax contribution: $8,000 × (1 - 0.24) = $6,080/year
• Future Value (tax-free): ~$644,000

Result:
In this scenario, the Traditional 401(k) yields more after-tax value, but if the retirement tax rate is higher, the Roth might win.

When to Choose Roth 401(k) vs. Traditional 401(k)

Choose Roth 401(k) If:

• You expect to be in a higher tax bracket during retirement.
• You prefer tax-free growth and withdrawals.
• You're early in your career with lower current income.

Choose Traditional 401(k) If:

• You expect a lower tax rate at retirement.
• You want higher immediate tax deductions.
• You're closer to retirement or at peak earning years.

Additional Insights

• Both plans often have the same contribution limits ($23,000 in 2025, plus catch-up for those 50+).
• Employers can match contributions on either plan—but their match always goes into a Traditional 401(k) bucket.
• You can split contributions between Roth and Traditional accounts in most employer plans.

20 Frequently Asked Questions (FAQs)

1. What is the main difference between Roth 401(k) and Traditional 401(k)?

Roth 401(k) contributions are taxed upfront; Traditional 401(k) contributions are taxed at withdrawal.

2. Can I have both a Roth and a Traditional 401(k)?

Yes, most employers allow you to split contributions between both.

3. Does my employer match go into Roth 401(k)?

No, employer matches always go into a Traditional 401(k), regardless of your contribution type.

4. Are Roth 401(k) withdrawals tax-free?

Yes, qualified Roth withdrawals (after age 59½ and 5 years) are tax-free.

5. Are there income limits for Roth 401(k)?

No. Unlike Roth IRAs, Roth 401(k)s have no income limits.

6. What happens if I change jobs?

You can roll over a Roth 401(k) to a Roth IRA or a new employer’s plan.

7. Can I convert a Traditional 401(k) to Roth?

Yes, this is called a Roth conversion and will trigger taxes.

8. Is there a penalty for early withdrawal?

Yes, 10% penalty before age 59½ unless exceptions apply.

9. Can I withdraw Roth contributions early without tax?

You can withdraw your contributions (not earnings) from a Roth 401(k) early without penalty.

10. Which is better for young investors?

Often Roth 401(k), due to low current tax rates and decades of tax-free growth.

11. Which account grows faster?

Both grow at the same rate, but the after-tax value may differ.

12. What if I retire in a no-income-tax state?

A Traditional 401(k) might benefit more in that case.

13. Can I switch from Traditional to Roth?

Yes, if your plan allows Roth contributions or via rollover.

14. Is Roth 401(k) good for high-income earners?

It can be, especially if you want to hedge future tax increases.

15. Are required minimum distributions (RMDs) applicable?

Yes, both accounts require RMDs after age 73, but Roth IRAs don’t.

16. Can I avoid RMDs with Roth 401(k)?

You can roll it into a Roth IRA to avoid RMDs.

17. Do Roth accounts reduce taxable income now?

No. Roth contributions are made with after-tax dollars.

18. Can I withdraw for hardship?

Yes, but rules and penalties may apply depending on the plan.

19. How is the calculator result affected by tax assumptions?

A change in either current or retirement tax rates significantly shifts the benefit.

20. Does inflation affect the results?

Yes, but the calculator typically works in nominal dollars unless specified.

Conclusion

Choosing between a Roth 401(k) and a Traditional 401(k) is more than just picking a tax strategy—it’s about maximizing your future retirement value. Our Roth 401(k) vs. 401(k) Calculator simplifies this complex decision by modeling your expected growth, contribution strategy, and tax landscape to give you a clear answer.