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Roth 401k vs Traditional 401k Calculator: Compare and Plan Your Retirement
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Preparing for retirement involves making strategic financial decisions. Contributions to a Traditional 401(k) plan or individual retirement accounts are made on a pre-tax basis, resulting in a lower tax bill, and higher take-home pay. Contributions made to a Roth 401(k) or IRA are made on an after-tax basis, which means that taxes are paid on the amount contributed in the current year. The reverse is true once you are eligible to make withdrawals. Withdrawals from Traditional plans are taxable, while those made from a Roth are not. Effective retirement planning can help individuals strategically allocate contributions to Traditional and Roth accounts, balancing current tax benefits with future tax-free withdrawals.
Roth 401(k) FAQs
With a Roth 401(k), your contributions are made with after-tax dollars so that they won't lower your taxable income today. But the payoff can be significant in retirement: qualified withdrawals—including earnings—are tax-free. If you expect to be in a higher tax bracket down the road, this could be a smart way to manage your future tax burden.
No income limits here. Unlike Roth IRAs, Roth 401(k) plans are available to all eligible employees—no matter how much you earn. That means you can benefit from tax-free growth without worrying about your income level.
Yes—you can complete an in-plan conversion from a traditional 401(k) to a Roth 401(k). Remember that any pre-tax contributions you convert will be taxed in the year of the conversion. The upside? Once in the Roth, your money can grow and be withdrawn tax-free in retirement, as long as the rules are met.
Roth 401(k)s are subject to RMDs starting at age 73. However, you can sidestep those distributions by rolling the funds into a Roth IRA, which doesn't require withdrawals during your lifetime. It's a simple move that can help you stay in control of your long-term financial plan.
Your contributions go into your Roth 401(k) account and grow tax-free. However, employer matches are added to a separate traditional 401(k) account and are made pre-tax. That portion will be taxed when withdrawn in retirement. It's a smart combo of tax strategies working together.
*PLEASE NOTE: These FAQs are intended to be used for informational purposes and should not be considered financial advice. Consult a financial advisor, accountant or other financial professional to learn more about what strategies are appropriate for your situation. Roth 401(k)'s are not insured by NCUA.