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Which works for you: a Roth 401(k) or a traditional 401(k)

A 401(k) plan account can be an effective retirement tool. Roth 401(k) contributions allow you to contribute to your 401(k) account on an after-tax basis and generally pay no taxes on earnings for qualifying distributions when the money is withdrawn. For some investors this could prove to be a better option than the traditional 401(k) contributions, where contributions are made on a pre-tax basis, but are subject to taxes when the money is withdrawn. Use this calculator to help determine the option that could work for you.

Which works for you: a Roth 401(k) or a traditional 401(k) Definitions

Current age
Your current age.
Age of retirement
Age you wish to retire.
Current tax rate
The current marginal income tax rate you expect to pay on your taxable income. **TAXTABLE_CURRENT_DEFINITION**
Retirement tax rate
The marginal federal income tax rate you expect to pay on your retirement account distributions. Keep in mind that the calculator does not factor in other taxes such as state taxes, which could affect the comparison.
Current income
This is your current annual income.
Current contribution type
This is either Roth or traditional. If you choose 'Roth' we will increase the assumed contribution to your 'traditional' option to equal the same net take home pay. If you choose 'traditional' we will decrease the assumed contribution to your 'Roth' option to equal the same net take home pay.
Annual contribution
The amount you expect to contribute to a 401(k) account 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 2018 is $18,500 (the Code Section 402(g) limit). If you are age 50 or over, a 'catch-up' provision allows you to contribute even more to your 401(k) account, provided your employer's plan allows catch-up contributions. In 2018, employees age 50 or older can deposit an additional $6,000 into their 401(k) account. It is also important to note that employer contributions will not count towards the employee's annual contribution limit under Code Section 402(g). Both the annual maximum and 'catch-up' provisions are indexed for inflation on an annual basis. Your employer's 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' (those employees who either earn over $120,000 (in 2018) or own more than 5% of the company) may be subject to a lower annual contribution limit due to the rate of participation of Non-highly Compensated employees versus Highly Compensated employees during the year. Sometimes a company will provide for a lower annual contribution limit in the plan document based on a historical determination of the rate that will past testing; however, most of the time the plan will permit contributions by Highly Compensated Employees up to the Code Section 402(g) limit and then refund the excess contributions after the plan year testing is completed and the lower limit is determined. If you believe you may be a Highly Compensated employee, you should contact your employer to see if these additional contribution limits apply to you.

Hypothetical rate of return
The hypothetical annual effective rate of return for your 401(k) account. This calculator assumes that your deposits are made at the beginning of each pay period. For annual pay frequencies, it assumes the contributions are made at the beginning of the year. The actual rate of return is largely dependent on the type of investments you select.

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.

Pay frequency
How often you are paid. We use this entry to calculate the net impact on your paycheck.
Qualified Distribution
There are two requirements to take a qualified distribution from a Roth 401(k) account. A qualified distribution is one that is taken (i) at least five tax years from the year of your first Roth 401(k) contribution; and (ii) on or after the date on which you reach age 59 1/2 (or upon disability or death).
Hypothetical Value at Retirement Age after Taxes, traditional 401(k) and After-Tax Amount Invested
For the Roth 401(k), this is the total value of the account. For the traditional 401(k), this is the sum of two parts: 1) The value of the account after you pay income taxes on all earnings and tax-deferred contributions and 2) The accumulated value of the income tax savings of any contributions that exceeded your 401(k) contribution limit, if any, if you invested them as after-tax contributions to a tax-deferred vehicle. For these earnings, distributions are taxed at the same tax rate you indicate in the Retirement tax rate.