Step 1: Based on whether you chose to input traditional or Roth we determined the equivalent contribution of the other type that would have the same impact on take home pay. If this amount exceeds your contribution limit we assume those excess tax savings would be invested as after-tax contributions to the plan, an IRA or other tax-deferred vehicle.
Step 2: First we found the value of a Roth 401(k) if you contributed ANNUAL_ROTH_CONTRIBUTION per year for YEARS_UNTIL_RETIREMENT years earning an assumed RATE_OF_RETURN per year. This equaled TOTAL_ROTH. Since qualified distributions from a Roth 401(k) are not taxed, the total value remains TOTAL_ROTH.
Step 3:We then computed the totals for a Traditional 401(k). Again we determined the value of ANNUAL_TRADITIONAL_CONTRIBUTION per year for YEARS_UNTIL_RETIREMENT years earning an assumed RATE_OF_RETURN per year. This equaled V401K_TOTAL_BF_TAX. This is equal to higher than the Roth 401(k) total, TOTAL_ROTH. However, contributions and all earnings in a Traditional 401(k) are taxable when they are withdrawn. After taxes, the value of your Traditional 401(k) account would be V401K_TOTAL_AF_TAX.
Step 4: Finally, we need to account for possible differences in take home pay between the two options. This is for situations where the Traditional account contributions might exceed the 2016 annual 402(g) limit of $18,000 if your age is less than 50 and $24,000 if your age is greater than 50. The amount over the limit if invested in a non-tax-deferred account, at a rate of RATE_OF_RETURN for YEARS_UNTIL_RETIREMENT years, could be worth TOTAL_TAXABLE at retirement. This is after earnings are taxed. Based on your inputs there is no difference in take home pay, so this additional calculation is not required.
|Traditional||Non-Tax-Deferred Account||Total Traditional & Non-Tax-Deferred Account||Roth|
|Total contributions until retirement age: A||TOTAL_TRADITIONAL_CONTRIBUTIONS||TOTAL_TAXABLE_CONTRIBUTIONS||TOTAL_BOTH_CONTRIBUTIONS||TOTAL_ROTH_CONTRIBUTIONS|
|Current taxes: B||$0||TOTAL_TAXABLE_CURRENTTAX||TOTAL_BOTH_CURRENTTAX||TOTAL_ROTH_CURRENTTAX|
|Total contributions plus current taxes (A+B): C||TOTAL_TRADITIONAL_CONTRIBUTIONS||TOTAL_TAXABLE_COMBINED||TOTAL_BOTH_COMBINED||TOTAL_ROTH_COMBINED|
|Hypothetical value at retirement age: D||V401K_TOTAL_BF_TAX||TOTAL_TAXABLE_BF_TAX||TOTAL_BOTH_BF_TAX||TOTAL_ROTH|
|Taxes at retirement: E||- TOTAL_TRADITIONAL_RETIRETAX||- TOTAL_TAXABLE_RETIRETAX||- TOTAL_BOTH_RETIRETAX||- TOTAL_ROTH_RETIRETAX|
|Hypothetical value at retirement after taxes (D-E): F||V401K_TOTAL_AF_TAX||TOTAL_TAXABLE||TOTAL_BOTH||TOTAL_ROTH|
|Current contribution type||CURRENT_CONTRIBUTION_TYPE|
|Current annual contribution||ANNUAL_CONTRIBUTION|
|Current tax bracket||CURRENT_TAX_RATE|
|Hypothetical rate of return||RATE_OF_RETURN|
|Retirement tax rate||RETIREMENT_TAX_RATE|
|Tax Rate||Married Filing Jointly or Qualified Widow(er)||Single||Head of Household||Married Filing Separately|
|10%||$0 - $18,550||$0 - $9,275||$0 - $13,250||$0 - $9,275|
|15%||$18,550 - $75,300||$9,275 - $37,650||$13,250 - $50,400||$9,275 - $37,650|
|25%||$75,300 - $151,900||$37,650 - $91,150||$50,400 - $130,150||$37,650 - $75,950|
|28%||$151,900 - $231,450||$91,150 - $190,150||$130,150 - $210,800||$75,950 - $115,725|
|33%||$231,450 -$413,350||$190,150 - $413,350||$210,800 - $413,350||$115,725 - $206,675|
|35%||$413,350 -$466,950||$413,350 - $415,050||$413,350 - $441,000||$206,675 - $233,475|
|39.6%||Over $466,950||Over $415,050||Over $441,000||Over $233,475|
*Caution: Do not use these tax rate schedules to figure 2015 taxes. Use only to figure 2016 estimates. Source: 2015 Rev. Proc. 2015-61
It is important to remember that future rates of return can't be predicted and that investments that have a higher return potential are subject to higher risk and volatility. The actual rate of return on investments can vary widely over time. This includes the potential loss of principal on your investment.
The amount you expect to contribute to a 401(k) each year. This calculator assumes that new contributions to your account are made until you reach your retirement age. If you are currently age 29 and expect to retire at age 65, your first new contribution will happen at age 30 and continue until through age 65.
The annual maximum for 2016 is $18,000 (the 402(g) limit). If you are age 50 or over, a 'catch-up' provision allows you to contribute even more to your 401(k). Employees over 50 can deposit an additional $6,000 into their 401(k) account. It is also important to note that employer contributions do not affect an employee's maximum annual contribution limit. Both the annual maximum and 'catch-up' provisions are indexed for inflation. Your plan may also impose limits on how much you can contribute.
It is important to note that some employees are subject to another form of contribution limits. Employees classified as 'Highly Compensated' may be subject to contribution limits based on their employer's overall 401(k) participation. You may need to contact your employer to see if these additional contribution limits apply to you.
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