Step 1: First we found the value of a Roth 401(k) if you contributed ANNUAL_CONTRIBUTION per year for YEARS_UNTIL_RETIREMENT years earning an assumed RATE_OF_RETURN per year. This equaled TOTAL_ROTH. Since qualified withdrawals from a Roth 401(k) are not taxed, the total value remains TOTAL_ROTH.
Step 2: We then computed the totals for a traditional 401(k). Again we determined the value of ANNUAL_CONTRIBUTION per year for YEARS_UNTIL_RETIREMENT years earning an assumed RATE_OF_RETURN per year. This is the same amount as the Roth 401(k) total, V401K_TOTAL_BF_TAX. However, contributions and all earnings in a traditional 401(k) are taxable when they are withdrawn.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 3: Since you receive a current year tax deduction for any traditional 401(k) contributions, we need to determine the value of investing this tax savings and add this amount to the traditional 401(k) total. If we forget this step, our comparison will not be equal. We would, in effect, be contributing more to our Roth 401(k) than the traditional 401(k). If your tax savings were invested for YEARS_UNTIL_RETIREMENT years at an assumed rate of RATE_OF_RETURN, this returns a total of TOTAL_TAXABLE after taxes.
|Traditional 401(k)||Roth 401(k)|
|Total before taxes||V401K_TOTAL_BF_TAX||TOTAL_ROTH|
|Value of investing tax savings||+ TOTAL_TAXABLE||+ 0|
|Taxes for 401(k) at retirement||- V401K_TOTAL_TAXES||- 0|
|Value at retirement (age AGE_OF_RETIREMENT)||TOTAL_401K||TOTAL_ROTH|
|Years until retirement||YEARS_UNTIL_RETIREMENT||Age of retirement||AGE_OF_RETIREMENT|
|Expected rate of return||RATE_OF_RETURN|
|Current tax rate||CURRENT_TAX_RATE||Retirement tax rate||RETIREMENT_TAX_RATE|
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. If you expect your salary to be $120,000 or more in 2015 or was $115,000 or more in 2014, you may need to contact your employer to see if these additional contribution limits apply to you.
It is important to remember that these scenarios are hypothetical and that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that Separate Account investment funds and/or investment companies may charge.
|Filing Status and Income Tax Rates 2015*|
|Tax Rate||Married Filing Jointly or Qualified Widow(er)||Single||Head of Household||Married Filing Separately|
|10%||$0 - $18,450||$0 - $9,225||$0 - $13,150||$0 - $9,225|
|15%||$18,450 - $74,900||$9,225 - $37,450||$13,150 - $50,200||$9,225 - $37,450|
|25%||$74,900 - $151,200||$37,450 - $90,750||$50,200 - $129,600||$37,450 - $75,600|
|28%||$151,200 - $230,450||$90,750 - $189,300||$129,600 - $209,850||$75,600 - $115,225|
|33%||$230,450 - $411,500||$189,300 - $411,500||$209,850 - $411,500||$115,225 - $205,750|
|35%||$411,500 - $464,850||$411,500- $413,200||$411,500 - $439,000||$205,750 - $232,425|
|39.6%||over $464,850||over $413,200||over $439,000||over $232,425|
*Caution: Do not use these tax rate schedules to figure 2014 taxes. Use only to figure 2015 estimates. Source: 2014 Rev. Proc. 2014-61
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