Roth 403(b) vs. Traditional 403(b) Calculator
Roth 403(b) vs. Traditional 403(b) Calculator Definitions
- Current age
- Your current age.
- Age at retirement
- Age you wish to retire. This calculator assumes that the year you retire, you do not make any contributions to your 403(b). For example, if you retire at age 65, your last contribution occurs when you are actually 64.
- Annual contribution
- The amount you will contribute to a 403(b) each year. This calculator assumes that you make 12 equal contributions throughout the year at the beginning of each month. **403B_ANNUAL_LIMITS** 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.
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 403(b) participation. **401k_HIGHLY_COMPENSATED**
- Invest traditional tax-savings
- Check this box to invest any tax savings generated by contributions to a traditional 403(b). By investing your taxes savings each year, you equalize the total cash flow between the two account types. For example, if you have a 25% income tax rate and contribute $1,000 to your retirement account, the actual cost after taxes would be $750 for the traditional contribution and $1,000 for the Roth contribution. If you do not to invest the difference, you are actually "spending" more per year with the Roth option and end result will greatly favor a Roth-type savings plan. You may wish to leave this box unchecked if you have no ability or desire to create an additional investment account outside of your 403(b).
- Maximize contributions
- Check this box to increase all contributions to the maximum allowed each year. This will include future years that qualify for catch-up contributions. **403B_ANNUAL_LIMITS**
- Expected rate of return
- The annual rate of return for your 403(b) account. This calculator assumes that your return is compounded annually and your deposits are made monthly. The actual rate of return is largely dependent on the types of investments you select. The Standard & Poor's 500® (S&P 500®) for the 10 years ending December 31st 2020, had an annual compounded rate of return of 13.8%, including reinvestment of dividends. From January 1, 1971 to December 31st 2020, the average annual compounded rate of return for the S&P 500®, including reinvestment of dividends, was approximately 10.8% (source: www.spglobal.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). Savings accounts at a financial institution may pay as little as 0.25% or less but carry significantly lower risk of loss of principal balances.
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 investment funds and/or investment companies may charge.
- Current tax rate
- The current marginal income tax rate you expect to pay on your taxable investments. **TAXTABLE_CURRENT_DEFINITION**
- Retirement tax rate
- The marginal tax rate you expect to pay on your investments at retirement.
- After tax total at retirement
- For the Roth 403(b), this is the total value of the account. For the traditional 403(b), this is the sum of two parts: 1) The value of the account after you pay income taxes on all earnings and tax-deductible contributions and 2) what you would have earned if you had invested (in an ordinary taxable account) any income tax savings.